Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd

[2000] FCA 1376

FEDERAL COURT OF AUSTRALIA

Australian Competition & Consumer Commission v CG Berbatis Holdings Pty Ltd (ACN 008 799 040) [2000] FCA 1376

TRADE AND COMMERCE – prohibition against unconscionable conduct – landlord and tenant – renewal of leases – pending legal proceedings by tenants against landlords – landlords refusal to grant new lease unless released from pending legal proceedings – whether unconscionable conduct – nature of relationship between landlord and tenants – whether disadvantage or inequality – whether conduct involves unfair exploitation of disadvantage or inequality – misleading or deceptive conduct – representations as to future conduct
EQUITY – unconscionable conduct – scope of equitable doctrine – nature of disadvantage or inequality necessary to establish unconscionable conduct – nature of conduct.

Trade Practices Act 1974 (Cth) ss 51AA, 52
Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA)

Blomley v Ryan (1957) 99 CLR 362 applied
Commercial Bank of Australia Limited v Amadio (1982) 151 CLR 447 applied
Louth v Diprose (1992) 175 CLR 621 applied

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v CG BERBATIS HOLDINGS PTY LTD (ACN 008 799 040), GPA PTY LTD (ACN 008 799 664), P & G INVESTMENTS PTY LTD (ACN 009 224 757), GEORGE PALASSIS ATZEMIS, CONSTANTINE GEORGE BERBATIS, ANNA MARIA ANTOINA HEIJNE, BRIAN SULLIVAN PROPERTY PTY LTD (ACN 075 946 244) and BRIAN EDWARD SULLIVAN
WG47 of 1998

FRENCH J
26 SEPTEMBER 2000
PERTH

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY	WG47 OF 1998

BETWEEN:

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
Applicant

AND:

CG BERBATIS HOLDINGS PTY LTD
(ACN 008 799 040)
First Respondent

GPA PTY LTD (ACN 008 799 664)
Second Respondent

P & G INVESTMENTS PTY LTD
(ACN 009 224 757)
Third Respondent

GEORGE PALASSIS ATZEMIS
Fourth Respondent

CONSTANTINE GEORGE BERBATIS
Fifth Respondent

ANNA MARIA ANTOINA HEIJNE
Sixth Respondent

BRIAN SULLIVAN PROPERTY PTY LTD
(ACN 075 946 244)
Seventh Respondent

BRIAN EDWARD SULLIVAN
Eighth Respondent

JUDGE:

FRENCH

DATE OF ORDER:

26 SEPTEMBER 2000

WHERE MADE:

PERTH

THE COURT ORDERS THAT:

1.It is hereby declared that in May 1996 and October 1996 the First, Second and Third Respondents, engaged in conduct that was unconscionable within the meaning of the unwritten law from time to time of the States and Territories, in contravention of s 51AA of the Trade Practices Act 1974, in that the said Respondents required, as a condition of the grant of a new lease to Margaret Joan Roberts and James Arthur Roberts, as Trustees of the Roberts Family Trust, trading as Leeming Fish Supply at Shop 14, Farrington Fayre Shopping Centre, that the Roberts do release the First to Fourth Respondents from various claims arising under their existing lease.

2.It is hereby declared that in May 1996 and October 1996 the Fourth, Fifth and Sixth Respondents were directly or indirectly knowingly concerned in or party to conduct in trade or commerce that was unconscionable within the meaning of the unwritten law from time to time of the States and Territories, in contravention of s 51AA of the Trade Practices Act 1974, in that the said Respondents required, as a condition of the grant of a new lease to Margaret Joan Roberts and James Arthur Roberts, as Trustees of the Roberts Family Trust, trading as Leeming Fish Supply at Shop 14, Farrington Fayre Shopping Centre, that the Roberts do release the First to Fourth Respondents from various claims arising under their existing lease.

3.It is hereby declared that the Seventh Respondent, in October 1996 and the Eighth Respondent in May 1996 and October 1996, acting as agent for or on behalf of the owners of Farrington Fayre, were directly or indirectly knowingly concerned in or party to conduct in trade or commerce that was unconscionable with the meaning of the unwritten law, from time to time of the States and Territories, in contravention of s 51AA of the Trade Practices Act 1974, in requiring, as a condition of the grant of a new lease to Margaret Joan Roberts and James Arthur Roberts, as Trustees of the Roberts Family Trust, trading as Leeming Fish Supply at Shop 14, Farrington Fayre Shopping Centre, that the Roberts do release the First to Fourth Respondents from various claims arising under their existing lease.

4.The Applicant be at liberty within fourteen days to propose further or ancillary relief in relation to the conduct involving the Roberts.

5.The application is otherwise dismissed.

6.The parties within fourteen days file written submissions as to the costs of these proceedings.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY	WG 47 OF 1998

BETWEEN:

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
Applicant

AND:

CG BERBATIS HOLDINGS PTY LTD
 (ACN 008 799 040)
First Respondent

GPA PTY LTD (ACN 008 799 664)
Second Respondent

P & G INVESTMENTS PTY LTD
(ACN 009 224 757)
Third Respondent

GEORGE PALASSIS ATZEMIS
Fourth Respondent

CONSTANTINE GEORGE BERBATIS
Fifth Respondent

ANNA MARIA ANTOINA HEIJNE
Sixth Respondent

BRIAN SULLIVAN PROPERTY PTY LTD
(ACN 075 946 244)
Seventh Respondent

BRIAN EDWARD SULLIVAN
Eighth Respondent

JUDGE:	FRENCH
DATE:	26 SEPTEMBER 2000
PLACE:	PERTH

REASONS FOR JUDGMENT

Introduction

1. In these proceedings the Australian Competition and Consumer Commission (“ACCC”) alleges that the owners of Farrington Fayre Shopping Centre and their agents have contravened ss 51AA and 52 of the Trade Practices Act 1974 (Cth). The owners are said to have contravened s 51AA by imposing conditions on lease renewals for existing tenants of the shopping centre which required the tenants to withdraw pending legal proceedings against them. The imposition of those conditions and associated conduct is said to have constituted unconscionable conduct contrary to s 51AA. Representations as to the proposed omission of such conditions are said to have been made and to have been misleading or deceptive in the circumstances in which they were made.

2. The conduct which is proscribed by s 51AA is limited to the kind of conduct which would be treated as unconscionable under equitable doctrines generated by judge-made case law. In that sense the section is limited in its application. It does not cover as wide a range of conduct as s 51AC which is not limited in its application by equitable doctrines but which was enacted after the conduct the subject of these proceedings. The case involves the application of equitable doctrines of unconscionability via s 51AA. That section provides a basis for the award of statutory remedies in respect of conduct which would be treated as unconscionable in equity. This case, which involves the relationship between the owners of a shopping centre and three of their tenants, lies close to the border of unconscionable conduct. At common law a landlord has the legal right to decide who will or will not be its tenant. A landlord can decide that it will not renew the lease of a tenant with whom the landlord is in continuing conflict. But a landlord cannot use its legal rights unfairly to exploit the disadvantage of a vulnerable tenant so that the tenant is compelled to abandon bona fide claims it may have against the landlord arising out of its existing lease. Not every landlord who attaches a release condition to the renewal of a lease is thereby engaging in unconscionable conduct. Each case will, as the present case demonstrates, turn on the particular circumstances of both landlord and tenant and the way in which the landlord uses such advantage as it has.

3. Before turning to the factual background in this case it is necessary to refer to the provisions of the Commercial Tenancy (Retail Shops) Agreements Act 1985 which provide the context for the disputes that arose between the owners of the shopping centre and their tenants in this case. 

   Statutory Framework – Commercial Tenancy (Retail Shops) Agreements Act 1985

4. The Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA) is described in its long title as:

   “An Act to regulate commercial tenancy agreements relating to certain shops, to provide for the determination of questions arising under such agreements, and for connected purposes.”

   It will, for brevity, be referred to in these reasons as the Commercial Tenancy Act. Part I of the Act contains preliminary provisions.  Part II deals with Retail Shop Leases.  Part III concerns Determination of Questions, being questions referred to the Commercial Registrar under the Commercial Tribunal Act WA 1984, and questions referred by the Registrar to the Commercial Tribunal.  Part IV contains Miscellaneous provisions.

5. The Act deals with retail shop leases defined in s 3 as leases providing for the occupation of a retail shop with a retail floor area of 1000 square metres or less.  Retail shops include any premises situated in a retail shopping centre that are used wholly or predominantly for the carrying on of a business.  A retail shopping centre is a collection of premises, five or more of which are used wholly or predominantly for carrying on a business involving the sale of goods by retail or another specified business all of which have a common head lessor or comprise lots on a single strata plan under the Strata Titles Act 1985. 

6. Section 6 of the Act sets up a precontractual disclosure regime in relation to retail shop leases.  Where a tenant who enters into a retail shop lease has not been given a disclosure statement at least seven days before entering the lease or the disclosure statement given contains false or misleading information, the tenant may within sixty days after the lease was entered into give written notice of its termination.  The tenant may also apply in writing to the Commercial Tribunal for an order that the landlord pay compensation in respect of pecuniary loss suffered as a result of the failure to give a disclosure statement or the provision of a disclosure statement containing false or misleading information (s 6(1)).  Disclosure statements are to be in the prescribed form, duly completed and signed by or on behalf of the landlord and tenant and shall contain a statement notifying the tenant that he should seek independent legal advice (s 6(4)).  A disclosure statement is not required to be given on the renewal of a retail shop lease under an option or on the assignment of a retail shop lease (s 6(6)).  Retail shop leases are to be taken to grant to the tenant a right to assign the lease subject only to a right of the landlord to withhold consent to an assignment on reasonable grounds (s 10(1)).

7. The Act also deals with the concept of key money.  A provision in a retail shop lease to the effect that the landlord is entitled to or may require from the tenant key money or any consideration in respect of the goodwill of the business is void (s 9(1)).  Key money is defined in s 3 as:

   “(a)money that is to be paid by, or at the request or direction of, a tenant; or

   (b)any benefit that is to be conferred by, or at the request or direction of, a tenant,

   by way of a premium or something of a like nature in consideration of the granting of, or agreeing to grant, a lease or the renewal of a lease or the consenting to an assignment of a lease or the sub-leasing of the premises the subject of a lease;”

8. Under Part III of the Act a party to a retail shop lease may refer to the Commercial Registrar any question between the parties which he believes to be a question arising under the lease and the Registrar shall determine whether or not it is such a question and if it is hear the question with a view to achieving a solution acceptable to the parties to the lease (s 16(1)).  Where a question is so referred the Registrar may, in various defined circumstances, refer the matter to the Commercial Tribunal for determination (s 22).  Such a reference may be made where the Registrar is of the opinion that a solution acceptable to all of the parties to the reference cannot be attained by means of a hearing or the question has not been resolved within ninety days after it was referred to the Registrar or the Registrar is of opinion that because of the importance or complexity of the question or for any other reason it ought to be determined by the Tribunal.

   Statutory Framework – Trade Practices Act 1974 (Cth)

9. Section 51AA of the Trade Practices Act 1974 (Cth) provides:

   “(1)  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.

   (2)  This section does not apply to conduct that is prohibited by section 51AB or 51AC.”

   The background to the introduction of this provision and the associated provisions in s 51AB and 51AC is set out in my earlier judgment in Australian Competition & Consumer Commission v CG Berbatis Holdings Pty Ltd (2000) 169 ALR 324 at 326-328.

   The Shopping Centre – Its Owners, Agents and Managers

10. The Farrington Fayre Shopping Centre is located at Farrington Road, Leeming.  CG Berbatis Holdings Pty Ltd (“CG Berbatis Holdings”), GPA Pty Ltd (“GPA”) P & G Investments Pty Ltd (“P & G”) and George Palassis Atzemis (“Mr Atzemis”) are the registered proprietors as tenants in common of the land on which the shopping centre stands. The business of the shopping centre is conducted by the owners as partners.  Mr Atzemis and Constantine George Berbatis (“Mr Berbatis”) are directors of CG Berbatis Holdings and GPA.  Anna Maria Antonia Heijne is a director of P & G.

11. The Centre comprised some 26 tenancies.  The managing agent of the Centre from 1989 until August or September 1996 was Raine & Horne International Pty Ltd.  In August or September 1996 that company was acquired by Davpac Holdings Pty Ltd trading as First Pacific Davies (WA) (“FPD”) which continued until 30 June 1997 as managing agent for the Centre.  Craig Wilson was the Director Retail for Raine & Horne and subsequently FPD whose duties included overall responsibility and coordination of the Retail Department which included the leasing, management and marketing of retail properties.  The Farrington Fayre Shopping Centre was part of his general responsibility in that position.  His duties extended to the supervision and direction of the Centre Manager.  Fortnightly management meetings were held between FPD and the owners.  Mr Wilson attended most of these and when he was not able to attend a meeting would receive minutes afterwards (T 108).  Other FPD employees would also attend the meetings.  The owners were usually represented by Mr Atzemis, Ms Heijne and Mr Con Berbatis (T 109). 

12. The Centre Manager for Farrington Fayre, employed by Raine & Horne International Pty Ltd from 1994 and subsequently by FPD until 1997, was Glenda Clapp.  At all times she was responsible to Mr Wilson.  Ms Clapp’s duties included collection of rents, liaising with tenants, maintenance of the Centre, promotions, provision of financial information to the owners of the Centre and the preparation of variable outgoings and budgets.  From the time that she commenced her employment as Centre Manager for Farrington Fayre she received instructions from Messrs Atzemis and Berbatis and Ms Heijne.  These instructions would be provided jointly during regular meetings that were held although sometimes one owner would provide instructions on behalf of the others.  Another employee of FPD, David Hart was responsible for negotiating leases of properties managed by FPD including Farrington Fayre.  That responsibility extended to canvassing retailers to lease the properties.

13. From about March 1996 until September 1996, Brian Edward Sullivan, an employee of Mair & Co, Real Estate Agents, was employed as a property consultant to the owners of Farrington Fayre Shopping Centre.  From October 1996, Mr Sullivan’s company Brian Sullivan Property Pty Ltd was engaged to provide his services as asset manager of Farrington Fayre.  He was a director of that company.  At all times he was advising the owners in relation to negotiations concerning leases with the tenants of the Centre.  In accordance with Mr Sullivan’s role as explained to Mr Wilson, he was treated by FPD as if he were one of the owners.  Mr Wilson, in his evidence said (T110):

    “When he gave instructions, we carried them out to the best of our ability.”

    The Tenants

14. Among the tenants of Farrington Fayre in the years 1996 and 1997 were the following:

    1.Margaret Joan Roberts and her husband James Arthur Roberts as trustees of the Roberts Family Trust trading as Leeming Fish Supply who leased Shop 14, having an area of 70.4 square metres from 1 October 1989 to 2 December 1996.

    2.Banlon Pty Ltd trading as Farrington Dry Cleaners which was a tenant of Shop 15 having an area of 75.6 square metres from 22 June 1990 to 22 February 1997 and thereafter until 31 May 1997 as a monthly tenant.  The Directors of Banlon Pty Ltd were Hayden Alan Raitt and his wife Susan Margaret Raitt.

    3.Peter William Ternent and his wife Kathleen Elizabeth Ternent trading as Leeming Hardware who were the tenants of Shop 7 having an area of 100.4 square metres from 3 May 1992 to 22 February 1997.

    Other tenants included Donna Clark who operated a business called Gifts R Us, Hender & Farris Real Estate, Greg White of Mulberrys Fresh Foods and Phil Hawkins who operated a liquor store.

    Tenant Discontent – Litigation  with the Owners – 1990-1998

15. From 1990 Mrs Roberts and other tenants were concerned about some of the charges being levied under the terms of their leases by the landlords.  These included variable outgoings, charges and disputed calculations of the leased areas.  A fund was established called the Farrington Fayre Fighting Fund.  The Roberts contributed about $1,800 to the Fighting Fund over time.  The Raitts contributed about $3,500 and the Ternents about $2,000. 

16. In January 1996, proceedings were instituted against the owners of Farrington Fayre in the Commercial Tenancy Tribunal by Donna Clark of Gifts R Us and other tenants for various breaches of the Commercial Tenancy Act.   The tenants instructed John Pitman, a partner in the firm Taylor Smart, to advise and represent them.  His original instructions were that there was a possible claim against the owners with respect to calculation of variable outgoings and other charges.  According to the agreed statement of facts the Roberts instituted legal proceedings for compensation against the owners in the Commercial Tenancy Tribunal on 24 April 1996.    On 26 April 1996, Hender & Farris Real Estate, which leased Shop 6, filed a Reference of a Question arising under a Retail Shop Lease with the Commercial Registrar of the Commercial Tribunal.  The questions referred, of which there were thirteen, related, inter alia, to variable outgoings, floor space, management and audit fees, rent reviews and legal fees charged (X130). In May 1996 the tenants agreed to treat the proceedings instituted by one of their number, Hender & Farris, as a test case.  The continuance of proceedings instituted by the  other tenants would depend upon the outcome of that action.  On 5 June 1996, Farris filed application number 670/96 in the Commercial Tribunal and on or about 4 July 1996 John Hender Real Estate Pty Ltd was substituted as the applicant.  It was contended that the correct lettable area of the premises at Shop 6 was less than that prescribed in the tenant’s lease and that refunds were due from the respondents.  It was also said that significant changes in the “common area” of the Centre required a recalculation on the part of the owners of the amount of outgoings payable by the tenant and credit the tenant for overpayments. It was contended that further credits were due to the tenant in respect of aggregate outgoings payable under its lease documentation.  The tenant demanded refunds of purported sinking fund payments and rates and taxes and various other expenses which had been paid.  The owners contested the claims. 

1. On 13 December 1996, a decision was delivered by the Tribunal in which John Hender Real Estate Pty Ltd was partially successful.  The Tribunal made a number of findings.  The findings, as summarised in the agreed statement of facts (X135), were as follows:

   1.That land tax was a variable outgoing under the provisions of the lease entered into between John Hender Real Estate and the owners and had not been included in the owners’ budgets.

   2.The lettable area of John Hender Real Estate’s shop was 70.2 square metres, an area not stated in the lease document.

   3.The authority from the owners to Raine & Horn to charge managing agent’s fees was not a sufficient authority.

   4.The statutory charges and sinking fund were not in the budgets and therefore the budgets were insufficient.

   5.Qualified audits of variable outgoings can never comply with requirements of the Act.

   6.Strata title levies can be raised for void purposes under the Act and the strata title levies charged or purportedly charged to a tenant are void.

   7.The amounts paid by John Hender Real Estate that were in dispute were recoverable as being paid under a mistake of law and of fact. 

   The orders made by the Tribunal were:

   “1.That the applicant must pay to the respondents the rent reserved by the lease.

   2.That the payment by the applicant to the respondents of the applicant’s share of Aggregate Outgoings as defined in the lease is stayed.

   3.That the applicant be awarded the costs of its application to be determined after the appeal in respect of this application is determined.

   4.That the Commercial Tribunal will make no determination in respect of any claim by the applicant for the payment of interest.”

2. On 17 December 1996, the owners filed an appeal in the District Court. The tenant also filed an appeal.   Mr Pitman took advice from senior counsel, Mr Pringle QC.  Mr Pringle’s memorandum of January 1997 reviewed the Tribunal’s decision noting that while preliminary points of law were argued no evidence, save for documentation, had been produced.  The owners were complaining that the Tribunal’s determination was one it had not been asked to make and was against the evidence.  Mr Pringle quoted the last page of the Tribunal’s reasons where it found that amounts paid by John Hender Real Estate that were in dispute could be recovered as paid under a mistake of law and of fact.  Mr Pringle said in his opinion:

   “The ruling in the last sentence cannot be supported.  The claim for recovery of money paid under mistake of fact could not be properly adjudicated upon –

   (a)without evidence that a mistake was made and that payment was made under the mistake;

   (b)without hearing evidence relating to the defence of estoppel;

   (c)without considering section 125 of the Property Law Act after hearing the relevant evidence.”

   In addition, there were other individual rulings involving findings which were wrong in law or which decided factual questions not before the Tribunal.  Mr Pringle concluded:

   “The upshot is that I apprehend that unless the tenant makes formal concessions promptly, or offers to settle in a letter without prejudice except as to costs, the landlords’ appeal will succeed to a considerable extent and the tenant will be ordered to pay the costs of the appeal.”

   The opinion was dated 22 January 1997.  Mr Pitman said he conveyed the advice to his clients, he thought it was by telephone.  He did not recall if he had written to them.  He seemed vague on this issue and I am inclined to think that he probably did not pass the advice on at the time that it was given, albeit he acted upon it in relation to the appeal in the District Court.  On 7 February 1997, Mr Pitman consented, on behalf of the tenant, to an order by Registrar Kingsley allowing the appeal, quashing the Commercial Tribunal decision and remitting the matter to the Tribunal for rehearing.  No order was made for costs and the parties had liberty to apply for costs under the Suitors Fund Act.  The basis of the remitter for rehearing was not disclosed in the order of the District Court (X20).  On 20 February 1997, orders were made by consent by Commissioner Greaves in the same terms as the orders made by Registrar Kingsley on the owners’ appeal.  Mr Pitman did not concede the District Court appeal because he thought the tenants’ case unmeritorious.  It was the decision of the Tribunal and the advice he received on it which caused him concern.  In his words it “…wasn’t indicative of what we had gone before the Commercial Tribunal on” (T44).

3. Mr Pringle’s opinion included an advice that there was a reasonable prospect that the tenant would be entitled to recover, as having been paid under a mistake, its share of management fees on the basis that it did not know that the owners were not legally obliged to pay management fees and that the tenant was not obliged to contribute to them. This had to do with the adequacy of the authorisation given to the managing agents by the owners and its compliance with the requirements of s 60 of the Real Estate and Business Agents Act (WA).  He considered that if the agents were not entitled to a commission, a decision by the owners not to enforce their rights should not be held to increase the tenant’s liability to contribute to variable outgoings.  On 1 April 1997, John Hender Real Estate Pty Ltd commenced proceedings in the Supreme Court of Western Australia claiming declarations and damages against the owners in relation to matters similar to those which were the subject of the proceedings it had brought in the Commercial Tribunal (X21). 

4. On 3 September 1997, the tenants’ solicitors, Taylor Smart, sent each of them a circular letter advising of informal discussion they had had with the owners’ solicitors with a view to the possible resolution of the dispute about managing agent’s fees.  They understood from those discussions that the owners might be interested in resolving the whole of the claim by payment of half of the managing agent fees being claimed which would mean that a total of $33,212 would be payable.  Interest at 8% per annum had been calculated which, on that amount, would equal $13,805 over the period since the payments had been made.  The proposal for the settlement was on the basis that certain other claims were not pursued.  The tenants were advised that in respect of the managing agent fees it was not possible to give clear cut advice as to whether the court would allow a full recovery.  Mr Pitman expressed the opinion that full recovery would not be achieved.  A copy of Mr Pringle’s opinion of 22 January 1997 was attached to the circular letter to the tenants (X19).

5. In the event, on or about 26 November 1997, the proceedings were settled on the basis that the owners agreed to repay managing agent fees at the rate of $34.51 per square metre to a maximum of $30,461.50 and variable outgoings at the rate of $5.07 per square metre to a maximum of $3,898 for all tenants involved in the action in the Commercial Tribunal and the Supreme Court action.  On 27 November 1998, the proceedings in the Supreme Court were dismissed by consent with no order as to costs (X 23). Subsequently, Mr Farris alleged that Mr Pitman had made the settlement without his authority.  As a result, Mr Pitman suggested that Mr Farris get other representation.

   The Owners – Tying New Leases to Abandonment of the Litigation, March 1996 – February 1997

6. In a letter dated 21 March 1996 Glenda Clapp wrote to Mr Sullivan drawing his attention to the fact that there was a number of leases expiring at the shopping centre in early 1997.  She observed that he would no doubt be endeavouring to negotiate new leases and that the negotiations should be planned perhaps dealing first with the easier ones.  She expressed the hope that most lessees would want new leases but that they could not expect to retain everyone.  She identified Hayden Raitt as a tenant who definitely wanted to negotiate a new lease but first wanted the opportunity of meeting with the owners, Mr Sullivan and Clapp “…to have some general and friendly discussions on the Farrington Fayre Shopping Centre” (X 76).

7. Mr Sullivan wrote a letter to the owners on 23 April 1996 providing an overview of various properties which they owned and on which he was advising them.  He said he anticipated limited rental growth at Farrington Fayre due to increased competition and the absence of “catchment growth”.  Among the things which needed doing there was a “rebuilding of the relationship with the tenants”.  It was necessary at that time to enter into new leases with a number of them.  The renegotiation process would present an opportunity “to resolve many of the area disputes with existing tenants”.  It was essential that negotiation be on a one to one basis to achieve “the best possible deal” for the landlords.  Raine & Horne, he said, were preparing “a tenant by tenant plan of attack” under his instruction.  On his evidence, however, no such plan was ever concluded.  Mr Sullivan was, of course, aware of the Commercial Tenancy Tribunal proceedings and that complaints had been made by the tenants to the Ministry of Fair Trading.

8. Mr Sullivan’s understanding, as he put it in cross-examination, was that the owners felt that the matter of the dispute between the tenants and themselves was best handled by their solicitors and by FPD. He had advised the owners however that no existing tenant should be given a new lease unless there was an undertaking by the tenant to discontinue litigation brought by that tenant against the owners (T149).  He said this advice was not given until mid to late 1996.  However, having regard to the contents of his memorandum of 23 April 1996 it is probable that he in fact gave that advice in April, or at the latest May 1996.

9. By mid May 1996 when he became involved in discussions about a new lease for the Roberts’ premises so they could sell to a proposed purchaser, Mr Sullivan was aware that the owners were concerned and anxious about the pending litigation of the ongoing dispute between them and the tenants before the Commercial Registrar and the Commercial Tribunal.  He was not privy to details of the dispute although he had been informed it related to issues concerning the calculation of outgoings for the property and management fees.  He had received some legal advice from the owners’ solicitor, Carol Wong, which will be referred to in more detail below, that the owners could seek a release provision in any new lease granted to tenants involved in litigation against them.  It was Mr Sullivan’s view at the time that such a practice was perfectly legitimate from the owners’ perspective.  The owners were granting a commercial favour to the tenants by giving a new lease which they had no obligation to do.  He saw nothing wrong in the circumstances with the owners saying to the tenants that the commercial favour would only be given if the tenants agreed to cease action against the owners. 

10. The general issue of linking the grant of new leases to withdrawal by tenants of pending proceedings against the owners in the Commercial Tribunal had been discussed between Ms Clapp, Mr Wilson and Mr Sullivan at a management meeting at which the owners were present.  Her unchallenged recollection of the substance of the discussion at that meeting was as follows:

    “Sullivan: We want to include a “Deed of Mutual Release” in all new leases for existing tenants who had claims before the Commercial Tribunal.  If an existing tenant wants a new lease there will be trade off; the tenants drop their claims, the Owners make no claims against the tenant and they get a new lease.
    Wilson: Why would you want to do this with good tenants you don’t want to lose them.  Also, I am not sure it is even legal to get tenants to drop their case at the Commercial Registrar.
    Sullivan: There are some problems at Farrington Fayre at the moment and we want to get rid of those problems.  It doesn’t matter if they have been a good tenant or not. 
    Wilson: Yeah, but is it legal?  It’s contracting out of law and you can’t do that.  You should get legal advice first.
    Sullivan: We’re going to get some legal advice.
    Clapp: But it is the tenant’s right to go to the Commercial Registrar.  I don’t believe you should stop them.”

    Ms Clapp said that neither Mr Sullivan nor the owners who were present responded to her statement.  One of the owners, she did not recall who, just said to go and get the legal advice.  I accept the account of this meeting and conversation as given by Ms Clapp who was not cross-examined by any of the respondents.

11. Mr Sullivan prepared a document dated 17 June 1996 for a meeting to be held on that date (X83).  He referred to the tenancy dispute and recommended that they “push ahead to resolve one of the Commercial Mediation matters as quickly as possible”.  He recommended that priority be given to the Donna Clark case as discovery had been completed.  He said:

    “Tactically this is also a good ploy as Donna is a ring leader.  I would prefer to tackle the ring leader as I believe that if she is perceived to have had a loss then many others will fall by the wayside.”

    He recommended a change of solicitor from Carol Wong.  He referred to a Ministerial Inquiry into the activities of the agent and said:

    “On a personal note I recommend that Con understand his rights if he has to appear at any hearing.  It is apparent from Craig and Carol that R and H will be found “guilty” of some wrong doing and this may then cause us some concern for our Commercial Tribunal matters.”

    He had completed a list of issues before the Minister.  He told the owners he was

    “…struggling to identify an angle from which Howard Sattler could turn the media discussions around.  If there is no “angle” then there is, in my opinion, no point in appointing Howard Sattler.  In respect to the issues re the Commercial Tribunal (at the moment Mediation) my recommendation is to short cut all the hype and move to a higher level District court or Commercial Tribunal.  Therefor in respect to this matter I do not see a role for Mr Sattler.” (sic)

    At this point there had evidently been substantial media discussion of the dispute between the tenants and the owners.  The idea to brief Mr Sattler, a radio talkback presenter, came from Mr Berbatis.  He regarded the dispute as “a very serious blight on his standing in his community”.

12. At a further meeting held on 31 June 1996 with Messrs Berbatis, Atzemis and Ms Heijne, Mr Sullivan and the owners agreed that he would be provided with greater autonomy “…including the ability to make decisions for the group in respect to rent reviews, repairs and maintenance, instructions to solicitors and necessary other consultants, and other general day to day items”. (X84)  He was also instructed to prepare a short brief for Howard Sattler.  He couldn’t remember actually preparing a brief but did recall meeting Mr Sattler (T164).  This process does not appear to have led anywhere.  In an agenda prepared for a meeting on 1 July 1996, Mr Sullivan emphasised the need for a degree of autonomy on his part by complaining of the way in which Mr Berbatis conducted himself in meetings.  He said:

    “As asset manager I cannot be responsible for the performance of Agents and the properties generally if interference is going to continually occur.”

    He referred to the extension and renewal of various leases and a leasing strategy.  In relation to the Commercial Tribunal proceedings and the Ministerial Inquiry, Mr Sullivan proposed that that issue become “part of the asset management brief” effective from that day.  He reiterated that Raine & Horne would be found guilty of some wrong doing which could cause concern for the Commercial Tribunal matters.  As appears from the agenda and from his oral evidence in cross-examination, Mr Sullivan found it difficult working with Mr Berbatis.  He was also concerned about tension between the owners and their solicitor, Carol Wong.  He recommended that another firm be engaged to handle matters apart from standard documentation.  In relation to Farrington Fayre he wrote:

    “We are in the middle of several serious matters before the Commercial Registrar.”

    He accepted in cross-examination that there was no doubt that that was the view expressed to him repeatedly by the owners. 

13. In September 1996, Mr Berbatis emphasised the need for Mr Sullivan to liaise with the solicitor, Haydn Robinson who was acting in relation to the dispute with the tenants and provided advice in connection with the lease renewals.  He referred to “the critical nature of the legal issue” (X147).  In a letter to Mr Berbatis of 29 September 1996 Mr Sullivan suggested that he attend meetings with Mr Robinson in relation to any matters involving the Commercial Tribunal (X148).  He wanted more control of the overall portfolio (T172). 

14. On 11 November 1996, Mr Sullivan wrote of negotiations concerning the renewal of a lease for a tenancy called “Mulberrys”:

    “As you know we are negotiating on the basis that the tenant drops all claims against the Lessor.  Is such a clause in the new document (be that a lease or variation as you deem appropriate) or the surrender document water tight?  I am worried that we could complete this negotiation in good faith and still be subject to legal action under the old lease.”

    He was concerned about the possibility that such a clause might not be enforceable because of the doubts expressed by Mr Wilson back in May.  He felt it was necessary to follow that up and get a legal answer to the question that he had raised (T177).  In a faxed reply, dated 11 November 1996, Mr Robinson advised that it would be inappropriate to agree anything with the tenants of Mulberrys while they held over the head of the owners the threat of a claim before the Commercial Tribunal.  Mr Sullivan took this advice, although given in relation to Mulberrys, to be applicable to all negotiations with tenants in the same position in the Centre (T177).  Towards the end of November he said Mr Robinson was becoming more confident about their prospects of success in the litigation and was advising that the amount to which they would be exposed in the Tribunal was not likely to be very great.  In the course of a telephone conversation on 15 November, Mr Robinson expressed the view generally that the release provisions would be upheld by the courts. 

15. On 6 December 1996, Mr Sullivan was provided with a copy of a letter to Mr Robinson from Mr Pitman.  In that letter Mr Pitman, writing on behalf of Mr and Mrs Roberts, raised the contention that the owners’ requirement for a release as a condition of a new lease was “key money”.  Subsequently this objection was withdrawn by Mr Pitman on instruction from the Roberts.  Mr Sullivan remained sufficiently concerned about the enforceability of release type provisions that he requested FPD to seek advice in writing from Mr Robinson.  On 19 December Mr Robinson wrote to FPD proposing that the best way to circumvent the allegation that a release constituted a benefit comprising key money would be for there to be a separate deed of release with consideration independent of the granting, renewal or assignment of a lease.  Mr Robinson’s advice went on to observe that:

    “Inevitably tenants will argue the release was made under duress or that it is inextricably linked to the grant of the lease but if the release negotiations are strictly separated from the lease and all communications in writing then the landlord will have a real prospect of enforcing the release.”

16. Understandably Mr Sullivan formed the view that what Mr Robinson was proposing was a façade or sham.  He also was concerned about how the agent could possibly implement this advice in a practical way.  After receiving authority from the owners he wrote, on 30 December 1996, to another lawyer, Mr Tony Di Francesco at Ilbery Barblett and requested he provide advice on the matter.  At the bottom of his letter to Mr Di Francesco he added a post script:

    “I almost feel sick that I am recommending such a strategy to a client.  It begs the question about what a highly “American” and litigation driven society we are becoming.”

    By this he meant that he it was an extremely poor situation that he should have to recommend owners adopt a strategy to overcome the risk of tenants suing them.  His primary concern regarding the practice of requiring a release was that it might not be enforceable and that it might be considered key money.   Mr Di Francesco replied on 29 January 1997 (X119).  He advised that a release agreement with a current tenant would constitute “key money” within the meaning of the Act and would therefore be void and unenforceable.  Mr Sullivan asked the owners to allow him to obtain an opinion from a Queens Counsel to resolve the issue.  Ultimately the owners instructed him in writing not to obtain further advice.  This apparently followed their direct discussion of the matter with Mr Robinson.  Mr Sullivan was never primarily concerned about the possibility of allegations of duress by the tenants.  His focus was on the key money issue.

1. Notwithstanding the advice that he had received, Mr Sullivan never revoked the general direction to the agents about the incorporation of release clauses.

2. On 20 February 1997, Mr Robinson wrote to Mr Sullivan informing him that he had been advised by Mr Pitman that “the renegade tenants” had yet to formally instruct him to abandon the issues save for management fees.  It was apparent to Mr Robinson however that this was the advice Mr Pitman was giving to his clients which he assumed to be based on the advice he had received from Mr Pringle QC.  Mr Robinson went on:

   “As to the mutual releases, obviously if the claims by the tenants diminish the importance of the releases does likewise.  My view, on this issue remains that if releases are granted in connection “with the granting, renewal or assignment of a lease or the subleasing of the premises the subject of a lease”, then pursuant to section 9 of the CTA the releases will be void.”

   He reiterated his view that if release negotiations and agreements were totally separate from negotiations relating to granting, renewal or assignment of leases or subleases, then the enforceability of the discharges “would be strong”.  He considered the opinion of senior counsel on the validity of the releases to be unnecessary and an expensive luxury to the owners.

   The Roberts sell their business but not without difficulty  – March 1996 to December 1996

3. Mr and Mrs Roberts who operated the Leeming Fish Supply, occupied Shop 14 under an assignment of lease of the previous tenants which had been effected on 6 December 1989.  The lease assigned was for a period commencing on 15 February 1987 and terminating on 14 February 1992.  By a Deed of Extension the assigned lease was extended for a period of five years, terminating on 14 February 1997.

4. In or about March 1995, Mrs Roberts contacted Glenda Clapp to discuss the possibility of renewal of the lease.  She said they were thinking of selling the business.  Their daughter was ill and required considerable attention and both she and her husband thought it was time to get out.  They had been in the business long enough.  She said that if they could negotiate a new lease term that would assist them.  On 16 March 1995, Ms Clapp sent a memorandum to the owners indicating that the Roberts had requested an extension of their lease by five years.  She suggested that, given the owners were currently trying to achieve different dates for lease expiries, they should grant five, six or seven year extensions. She described the Roberts as good operators, adding to the strong tenancy mix at the Centre.  A handwritten note on her copy of the memorandum indicates that George Atzemis agreed to a five year term if there were provision for no less than a five per cent or CPI increase incorporated in the lease.  There was some discussion between Ms Clapp and Mr Atzemis about the desirability of a ten year lease commencing April 1995.  She recommended a new lease term of ten years two months to avoid the risk of a monthly tenancy for the two month interim period from the lease expiry in February to the commencement of the new lease in April.  In the event, on 10 April 1995, a letter was sent by Ms Clapp to the Roberts offering them a lease with alternative terms of seven years two months, eight years two months or ten years two months effective from 15 February 1997.  There was no period stated in the letter within which the offer had to be accepted.  Mrs Roberts treated it as an open offer and did not take it up at that time.

5. Anthony James Holland was employed for seventeen years as an officer of the Australian Customs Service.  In March 1996, having left the service, he and his wife Paula were looking to acquire a business of their own.  They decided they would like to run a fish and chip shop.  On or about 14 March 1996 he placed a letter under the door of the Roberts’ premises at the Farrington Fayre Shopping Centre.  He had had no prior intimation that Mr and Mrs Roberts had any intention of selling their business.  After reading the letter, Mrs Roberts contacted a business broker Allan Brown of William Shire Real Estate.  Mr Brown got in touch with Mr Holland and a meeting was arranged for 21 March 1996.  At that meeting Mr Holland examined the formal records of the business of the Leeming Fish Supply and concluded that it was “a strong and viable proposition” and that he and his wife would make an offer to purchase it.

6. On 26 March 1996, Mr and Mrs Holland, as trustees of the Holland Family Trust, made an offer to purchase the business of the Leeming Fish Supply for $68,000.  Their offer was accepted.  Settlement date was to be 23 April 1996.  The agreement incorporated and was subject to the following special conditions:

   “1.Lease Agreement – a new lease for 5 years plus 5 year option to be granted to the Purchasers by the Lessor as per letter of 10 April 1995 (see copy attached) with similar terms and conditions as per the Head lease existing and viewed by the Purchaser.

   2.The Purchaser is aware that the Vendor has paid excess moneys to Raine & Horne (Managing Agents) and all moneys due and payable to the Vendors (Roberts) will be refunded up to and including 23^rd April 1996.”

7. A day or two after signing the agreement, Mr Holland was contacted by Mr Brown who told him he would have to write to Ms Clapp at Raine & Horne to arrange the documentation required for him to obtain a lease.  Mr Holland drafted a letter and hand delivered it to the offices of Raine & Horne on that day.  He followed up with a telephone call to Ms Clapp on or about 4 April 1996 inquiring when he would be sent the requested documentation.  She told him it would be sent that day.  It arrived at his home sometime in the week commencing 8 April.  It included a document entitled “Retail Application and Business Plan”.  There was an asset and liability schedule attached to and forming part of that document.  Mr Holland completed the form and returned it to Raine & Horne.  Although he was aware, by reason of the second special condition in the purchase agreement, that legal action was being taken by the tenants of Farrington Fayre against the owners, he was not aware of the details of the action and did not inquire into it.  Also among the documents provided to him was a disclosure statement which he was unsure about signing because he had read a Small Business Development Corporation brochure about tenancy which stated that lease conditions should be provided with any such statement.  No lease conditions had been supplied by Raine & Horne and he was not willing to sign anything that might be construed as an agreement to conditions he had not seen.  When he contacted the WA Retailers Association Inc to check on his rights he spoke to Donna Clark.  She suggested he would be best advised to speak to a solicitor and he made an appointment to meet with John Pitman of Taylor Smart.

8. On 15 April, Mr Holland met with Mr Pitman and obtained legal advice in relation to the purchase of the business and the documentation provided by Raine & Horne.  On 6 May 1996, Mr Pitman wrote to Ms Clapp seeking information about the lease which the owners expected Mr Holland to enter.  He said in his letter that Mr Holland was not prepared to sign the disclosure statement until he had sighted the proposed lease.  He sought clarification of the position from the owners.  A copy of the letter was sent to the owners’ solicitor, Ms Carol Wong. 

9. Mr Sullivan had been told by Glenda Clapp of the agreement which the Roberts had made with Mr Holland.  She believed, and told Mr Sullivan, that Mr Holland would be a suitable tenant and potentially a successful operator of the business.  At about this time he had been told by Mr Con Berbatis, at a meeting with the owners, that he should become directly involved with the negotiation of the new lease in relation to the Roberts’ tenancy.  He was told that there were complications involving the assignment of the lease to an incoming party and difficulties experienced in relation to its negotiation.  The “difficulties” were not specified in Mr Sullivan’s statement.  In the event, at Mr Sullivan’s request, Ms Clapp contacted Mr Brown to arrange a meeting between Messrs. Sullivan, Holland, Brown and herself.  Mr Brown rang Mr Holland on 14 May and an appointment was set up for the next day at 2.30pm, according to Mr Holland, and 2pm according to Ms Clapp.  The purpose of the meeting, as stated by Mr Brown to Mr Holland, was to sort out difficulties with respect to the leasing arrangements and getting the deal done.  The meeting was to be at the premises of Mair & Co. 

10. Mr Sullivan spoke to Ms Wong on 14 May and discussed with her the letter from Taylor Smart.  On the morning of the meeting Ms Wong sent him a fax.  It was not a model of lucid expression or reasoning.  It referred to the need for compliance with all statutory procedures including a disclosure statement duly completed and signed before any lease was executed.  It contained a warning that Mr Sullivan must be very careful as Mr Pitman would “still loom at the background attacking on just anything he can lay his finger on” (sic).   Mr Sullivan was to make it clear to Mr Holland that the owners had an obligation only to consider Roberts’ proposed assignment.  They were under no obligation to grant a lease.  After referring to her costs for preparation of the lease, which would be calculated on an hourly rate of $300 if any amendments were required (otherwise a fixed fee of $900 would be charged), Ms Wong continued:

    “In approving the deal, Roberts’ application to the commercial registry must be withdrawn otherwise.  This must be worked out with Holland who must be happy with the situation at Farrington and the lease.  It may be good to get him sign a statement to that effect prior to agreeing lease. 
    Alternatively you may wish to open the argument that because Roberts have filed an application, Holland should find out what their complaints are before he offers to take new lease.  This must also be put on record.”(sic)

    Ms Wong said she had told Mr Brown that she was happy to give Mr Holland a letter to the effect that if the Commercial Registrar in any one case determined on the method of measurement as a result of which the whole Centre area was to be adjusted, his area would be adjusted accordingly.  Towards the end of the letter she said:

    “Generally to protect yourself and owners you must put in all sorts of qualifications.”

    At this time Mr Sullivan was aware that the Roberts were legally represented by Mr Pitman in relation to the dispute then before the Commercial Registrar between the tenants and the owners and that it was almost certain they would receive advice from Mr Pitman concerning the issue of a new lease associated with the sale of their business.  The purpose of the proposed meeting in Mr Sullivan’s mind was to start the negotiation, obtain from the parties involved a clear understanding of exactly what they wanted and to then get them to put the request in writing so the owners could consider the matter and respond accordingly.  It was his belief that, if requested, the owners had no choice but to grant an assignment of the existing lease for the balance of its term to the incoming purchaser.  From his discussions with them, he believed they were prepared to do that.  It was also his understanding that the owners were prepared to consider a request for an extension of the lease for a further term of between five to ten years if such request were made by the existing lessee. His instructions from Mr Berbatis were that the owners were likely to request that in return for the owners granting an extension of lease the Roberts should drop the legal action they were pursuing against the owners in the Commercial Tribunal.

11. At 2pm on 15 May, Messrs. Brown and Sullivan and Ms Clapp met at Mr Sullivan’s offices at Mair & Co.  Mr Holland who thought that the meeting was to start at 2.30, was not present.  The three proceeded to discuss the proposed new tenancy of the Roberts’ premises.  Mr Sullivan identified two options under which Mr Holland could acquire the business.  The first was a straight assignment of the existing lease for the balance of its term.  The second was an assignment followed by a new lease for seven or ten years.  According to Ms Clapp, Mr Sullivan said that if a new lease were to be given the owners would probably want the Roberts to drop the claim currently before the Commercial Tribunal.

12. Mr Brown, who made notes of the meeting the following day, confirmed this noting that both Ms Clapp and Mr Sullivan said that the new lease, which had been prepared in draft, could not proceed “…unless the matters outstanding by the vendor (Roberts) currently before the Commercial Registrar were withdrawn.”  It was pointed out, according to Mr Brown’s notes, that the purchaser would be required to proceed in his own right, without legal representation, with the lease arrangements.  Ms Clapp also prepared a note of the meeting which Mr Sullivan signed.  The note recorded that Mr Sullivan had gone through correspondence received from Mr Holland’s solicitor, Mr Pitman.  It concluded with the observation that:

    “The bottom line at the meeting was Brian Sullivan advised, should Mr Holland wish to assign the balance of the existing Lease (some 9 months), there should be no problems with this assignment alone.  However, as clearly outlined, should a Lease be sought then the Lessor is not prepared to negotiate a new lease when the “Legal’s” are involved and if a new Lease is to be based on different terms/conditions.”

13. Mr Sullivan contended in cross-examination that Mr Brown had misunderstood what he said at the meeting and that he would never tell somebody they could not have legal representation.  He explained his position thus:

    “What I was trying to say at that meeting was that we were trying to get to a point – we accept that people have the right to legal representation.  All we wanted to understand was what the incoming tenant wanted and we felt at that stage there was no need for us to have our lawyer there or for that matter the tenant to have their lawyer there.  There was nothing binding in its effect that we wanted from him.  We simply wanted to know what he wanted: “Did you want a lease of 10 years? How much rent do you want to pay? Do you want a lease of ten years? Are you prepared to pay?” – just the basics, and I had said at the meeting that that was why we had called the meeting.  That was why we hadn’t called the meeting with the lawyers; that we simply wanted a direct understanding of what it was the tenant wanted of us, meaning the landlord.” (T 155)

    Mr Sullivan had himself taken legal advice from Carol Wong on the morning of the meeting.  I do not accept that the position was as he put it in cross-examination.  I consider that what he said was reflected in the notes taken by Mr Brown and the note prepared by Ms Clapp, that is to say it was a condition of further negotiation that there should be no lawyer involved representing the prospective tenant.  This was a position prima facie at odds with the statutory requirement under s 6(4) of the Commercial Tenancy Act that disclosure statements must include a notification to the tenant that it should seek independent legal advice.  

14. Mr Holland turned up at the offices of Mair & Co on 15 May for what he thought was to be a 2.30pm meeting.  Nobody was there to see him.  He telephoned Mr Brown who was back at his office.  They arranged to meet at 4pm.  At that meeting Mr Brown explained to him that everybody was happy with his business plan and credentials but that certain conditions required by the owners had to be met before he could get a lease.  Mr Brown stated that these conditions were not negotiable.  They were as follows:

    1.Mr Pitman was to go and Mr Holland was to have no legal representation.

    2.The Roberts were to withdraw from the legal action lodged with the Commercial Registrar.

    3.He would have to have an assignment of the existing lease to 14 February 1996 and subsequently a ten year lease with no option.

    4.He was to pay all legal costs incurred to date in obtaining the lease documents.

    Mr Holland told Mr Brown that he was not interested in a ten year lease.  He also told Mr Brown that he was not interested in obtaining a lease if it meant the Roberts had to withdraw from their legal action which had nothing to do with him.  He told him he would discuss the situation with his wife before making a final decision.  On the following day he telephoned Mr Brown again and asked him to put the terms and conditions provided to him at the meeting in writing and detail the costs he was supposed to pay.  This was never provided.  On 17 May he delivered a letter to Mr Brown stating that he was withdrawing from the agreement to purchase and requesting the return of his deposit.  Mr Brown rang him back and asked if there were any reason why he was withdrawing his offer.  He replied that after all that had happened and the conditions requested he would prefer not to continue.  Mr Brown stated he would have to talk to the Roberts to see if they would release Mr Holland from the contract.  Mr Holland realised he would need to explain his technical reasons for withdrawing from the purchase.  He wrote a further letter to Mr Brown which his wife delivered to his offices on the morning of the following day.  In that letter he relied upon non-fulfilment of the special condition relating to the provision of a new lease for five years with a five year option. 

15. Throughout the period from the time of the agreement until his withdrawal from it, Mr Holland had worked on and off at the Leeming Fish Supply learning the business from Mr and Mrs Roberts.  After his wife had delivered the second letter of withdrawal on 18 May 1996 he informed the Roberts that he was still interested in purchasing their business under the right conditions.  He told Mrs Roberts that perhaps when things cooled down they would be able to negotiate again.  She agreed they would inform him of any other offers they might have to purchase the business.

16. On 20 May 1996, Mr Pitman wrote to Ms Wong confirming that Mr Holland was no longer intending to proceed with the purchase of the business at Shop 14.  Mr Pitman referred to the meeting of 15 May and attributed to Mr Sullivan the proposition that an assignment or lease would not be forthcoming to Mr Holland if the Roberts did not withdraw their current action at the Commercial Tribunal.  Mr Pitman said in his letter that he understood the reason given for that stance was that the owners would not be able to offer an assignment of lease or a fresh lease while the Tribunal application was pending.  He said this contention and belief was incorrect and misleading.  The application before the Tribunal had no bearing on the subject matter of the transfer of the premises as the Roberts would still maintain their action whether or not they were lessees.  Mr Pitman asked Ms Wong to advise her clients of the correct position as this understanding had evidently also been conveyed to other tenants.  Mr Pitman’s letter was passed on by Ms Wong to Mr Sullivan.  He wrote to her on 29 May and asserted that he had been at great pains to explain to Mr Brown that they were quite prepared to assign the balance under the existing lease to Mr Holland should he require that.  He said he had told Mr Brown that any request for a period beyond the existing lease term was a straight out request of the owners who were under no obligation at all in relation to granting a new lease of the premises.  There had been some discussion about what Mr Holland would look for in a new lease.  Mr Sullivan told Ms Wong he was happy for her to inform Taylor Smart that he was aware of the correct position.  He could not think of any other situation where he had suggested that the owners would not grant assignments unless Commercial Tribunal applications were dropped.  He also endeavoured to cast some blame on Mr Pitman for the assignment of lease not proceeding.  He said he had not seen before a situation where the assignee and assignor were both represented by the same solicitor.  Ms Clapp concurred with the contents of the letter in so much as it clearly stated that the owners were willing to grant an assignment of the existing lease without conditions.  I accept that it was not suggested that any assignment of the Roberts’ lease was to be conditional on the withdrawal of the proceedings against the owners.  Such a condition would be inconsistent with the tenant’s right to assign conferred by s 10 of the Commercial Tenancy Act.

1. Mrs Roberts said that she and her husband were under considerable stress as a result of the sale to Mr Holland falling through.  Her husband was off work for a period of about two weeks.  She told Ms Clapp by telephone of her husband’s illness and the stress that she herself was suffering.  She had various long term plans, including trips overseas, returning to the United Kingdom to visit family and visits interstate to see her sick sister and to investigate possible employment opportunities.  These plans all had to be cancelled.  The staffing of the business had to be reorganised because a number of the staff had left when the sale was announced and new staff had to be trained.  There was considerable disruption to herself and her family.  She was concerned she would never be able to sell the business because of the owners’ requirements to withdraw from the legal action which she and her husband did not want to do. 

2. At this time the business was trading well.  Mr Brown had valued it at between $80,000 and $90,000.  But without a lease or an extension or variation of the existing lease for a substantial period, it was almost worthless.  They had entered the business to pay off their mortgage and other debts.  The Roberts’ daughter had contracted chicken pox in or about May 1993 and continued to suffer bad health.  In August 1995 she was diagnosed as suffering from encephalitis.  The additional income obtained from the business enabled the Roberts to support her during and after this period including assisting her with hospital bills and medication costs.  Mrs Roberts said she had spoken to Ms Clapp on numerous occasions over the years about her daughter’s condition and the emotional strain this placed on herself and her husband.  The difficulties they faced in trying to sell the business, she said, added to this significantly.    

3. Following Mr Holland’s withdrawal from the proposed purchase of the business, the Roberts tried to fall back on the outstanding offer of a new lease set out in the letter of 10 April 1995.  They wrote to Ms Clapp on 6 June stating that they accepted “…the lessor’s offer of a seven year Lease following the expiry of the current lease subject to terms and conditions to be agreed upon.” (X 52)

4. Ms Clapp sought instructions from Mr Sullivan.  She sent him a copy of all relevant correspondence.  He telephoned her back.  He told her that the owners were still willing to offer the Roberts a new lease but not on the terms in the letter of 10 April 1995.  She asked what terms he wanted her to put to them.  He said that the lease term would be for seven years commencing at the expiry of the current lease with rental starting at their current rent.  That would be reviewed annually alternating between CPI and market value.  The first review would be one year after commencement of the lease.  There would also be a redevelopment clause.  Ms Clapp said she couldn’t see why the Roberts wouldn’t agree to that.  Mr Sullivan then added that there was something else.  He said they did not want to make an offer with no expiration period.  She was to make the offer available for only seven days by which time the Roberts were to sign and return a copy of the offer, with a signed disclosure document.  They were also to pay the legal fees and stamp duty within that seven days.  Ms Clapp was also to make sure they knew that all relevant documentation had to be completed within fourteen days of 27 June 1996.  When she asked him what would happen if they did not agree with those conditions he said that was what the owners were offering and the Roberts could take it or leave it.

5. On 25 June 1996, Ms Clapp sent a letter to the Roberts replying to their letter of 6 June.  She advised that the offer of 10 April 1995 had lapsed, that she had been instructed to advise of new lease terms subject to the lessor’s approval.  The new lease proposed was a seven year lease commencing 15 February 1997 with a commencing rental of $22,426.77 per annum plus outgoings.  A disclosure statement was enclosed which they were asked to sign and return to the office of Raine & Horne.  A copy of the draft lease was enclosed for perusal by the Roberts.  There was no reference either in the covering letter or the draft lease to any mutual release clause or withdrawal of the proceedings pending in the Commercial Tribunal.

6. Mrs Roberts was concerned that the disclosure statement set out incorrectly the area of the premises, the number of parking bays, the opening hours of the business and numerous other items.  Additionally, she received advice from Mr Pitman that the lease was unacceptable although her statement did not elaborate on the reasons for that.  She and her husband did not take up the offer.  She telephoned Ms Clapp, told her that she wasn’t happy with all the conditions of the lease and that the disclosure document was inaccurate.  Ms Clapp said she could consider the issues of inaccuracy in the disclosure statement but the lease was what the owners were willing to offer and she could take it or leave it.  There was no guarantee that she would get another offer.  On 14 August 1996, Ms Clapp sent to the Roberts a further Offer to Lease (X 37).  That offer was unchanged from the previous offer save that it proposed a commencement date of 1 October 1996 and a term of seven years.   The copy of the offer, tendered in evidence, appears to have been signed by the Roberts and an acceptance signed by or on behalf of the owners.  However no lease was  concluded to give effect to it.  The offer did not include any release provisions in relation to the Commercial Tribunal proceedings. 

7. In October 1996, the Roberts received an offer from a Mr Ian James to purchase their business.  Mrs Roberts told Mr James that she would have first to inform Mr Holland of the offer as he had right of first refusal.  Mr Holland told Mrs Roberts that he was still interested in the business if the other issues had been sorted out.  He discussed the business with Mr James and told him that he was still interested.  Mr James did not pursue the purchase of the Leeming Fish Supply.  On 28 October, Mr Holland signed an offer to purchase the business of the Leeming Fish Supply for $65,500.  The offer was accepted on the same day.  It was subject to a special condition expressed thus:

   “1.Lease Agreement – the current 7 yr lease (Commencement Date 1^st October 1996), being assigned to the satisfaction of the purchaser.”

   Settlement was to take place on 25 November 1996.  The offer was also expressed to be subject to finance.  The special condition relating to the assignment of the lease, as appears from its terms, was drafted on the assumption that there was a new seven year lease in place as proposed in the offer to lease sent to the Roberts in August and signed by them.  The true position, however, appears to have been that no lease document had yet been prepared pursuant to that signed offer.

8. On 29 October 1996, Mrs Roberts met with Mr Wilson at the FPD offices in West Perth.  In her written statement she thought this contact preceded the signing of the offer from Mr Holland.  She accepted in cross-examination however that it was quite possible, as indeed I find to be the case, that she approached FPD the day following the signing of the agreement. She asked Mr Wilson at the FPD offices if the owners would insist on her withdrawing from her legal action.  She did not wish to go through the process of selling the business again if the requirement to withdraw from the litigation remained.  Neither she nor or her husband wanted to withdraw from the action because they believed that what the owners were doing was not legal and that justice had to be done.  They were also interested in getting back alleged overpayments which she estimated at approximately $50,000.  She did not feel confident that the business would be sold because she expected the release clause to be retained.  According to her, Mr Wilson told her she would not be required to withdraw from the litigation but that “we would prefer it if you did”.  It was her testimony that Mr Wilson said that she could not be forced to withdraw from the action and that he assured her he would make sure the clause requiring her to withdraw from all legal action would not be included in the settlement.  She said she relied on what he had told her because she believed him and he was a director of FPD.  She assumed he had authority to negotiate leases as she had negotiated her purchase of the business through that firm in September 1989. 

9. Mr Wilson’s recollection of the conversation was somewhat limited (T 113).  He remembered that Mrs Roberts had been in his offices in October 1996 talking to Ms Clapp.  He could not remember whether he was called down for the conversation or whether he happened to be in the foyer area and started talking on the same matter to her.  Asked if he could recall the substance of what she said about the inclusion of a mutual release clause in any new lease for the business, he said she was certainly not happy to have such a covenant in the document.

10. Documentary evidence indicates that Mr Pitman of Taylor Smart wrote on 29 October 1996 to Haydn Robinson who was then acting as solicitor for the owners.  He requested a copy of the Roberts’ lease which he said “was signed sometime ago”.  This was in all probability a reference to the anticipated lease described in the Offer to Lease document signed in August.  It seems that the Roberts’ instructions to Mr Pitman may have confused the signed Offer to Lease with the lease itself.  The letter referred to the meeting between the Roberts and Craig Wilson and the advice from the latter that he could not provide an original lease as it was currently held by Carol Wong, former solicitor acting for the owners.  When the Roberts contacted Ms Wong they had been advised by her that she did not have any of the documents relating to the shop.  Mr Pitman asked, as a matter of urgency, for a copy of the signed lease so his clients could provide it to their prospective purchaser.  He threatened that if the prospective purchaser withdrew from the sale as a result of the copy not having been supplied, any loss incurred by the Roberts would be claimed against the owners.  On the same day, Mrs Roberts signed a letter to Mr Wilson asking him to confirm that he had received a copy of the agreement to purchase their business and that they had had a conversation regarding the lease.  She said:

    “I wish to thank you in your efforts to expedite this matter to a satisfactory conclusion on or near the date of the agreement 25 11 96.”

    Craig Wilson wrote back to her the following day confirming receipt of the agreement for purchase and of her verbal request for an assignment of lease to occur on 25 November 1996.  He told her that Ms Clapp would be processing the assignment of lease in accordance with normal procedures.  He said:

    “As was mentioned in our subsequent telephone conversation, a delay may occur as a result of the owners’ preparation of a new standard lease format, which in your particular instance will have a lease commencement date effective 1 October 1996.”

    Ms Clapp wrote to Mr Holland on 1 November confirming receipt of the request from the Roberts for an assignment of the lease.  She asked him to confirm that they could use the business plan which he had previously submitted.  She pointed out that it might not be possible to meet the date of 25 November as the new lease must be completed with Mr and Mrs Roberts before any other documentation could be prepared.  Ms Clapp had a discussion with Mr Holland on 11 November and forwarded his retail application and business plan to Mr Sullivan on the same day.  She said in her covering letter (X 91):

    “We have clearly confirmed with Mr Holland the situation with the new Lease for J and M Roberts, which has yet to be finalised.”

    She said Mr Holland appeared to have a sound knowledge of the business and how he intended to improve it.  His assets and liabilities were also adequate.  She could see no reason why the assignment should not be approved.  She requested instructions from Mr Sullivan.  At the time he told her that an assignment would be approved and that she should notify the owners’ solicitor, Haydn Robinson, and get the requisite documentation. 

11. Ms Clapp then had a discussion with Mr Robinson.  In a memo to Mr Sullivan on 13 November following that discussion (X 96) she said that “…as time is of the essence Haydn Robinson has suggested and recommending (sic) he prepare an Extension/Variation document for Roberts and then do an Assignment of Lease from Roberts to Holland”.  She asked for instructions from Mr Sullivan as soon as possible and suggested he might wish to discuss the matter with Mr Robinson.  Mr Sullivan evidently gave her instructions to proceed along these lines because on the following day she sent a fax to Haydn Robinson advising that Mr Sullivan had that day given his approval for an extension/variation of the lease for Shop 14.  She confirmed the advice in a fax of the same day to Mr Sullivan (X 98) and asked him whether the assignment was approved.  At about this time, according to Mr Sullivan, he met with the owners and they agreed that the Roberts should only be offered a new lease to pass to the purchaser of their business if they would agree to cease their legal action against the owners.  Following that meeting, on his evidence, FPD was instructed to prepare documents in relation to the Roberts’ assignment  and extension and to include a mutual release provision in them.  Mr Sullivan said he was firmly of the belief that the owners were acting lawfully in requiring such a condition. 

12. On 15 November 1996, Ms Clapp wrote to Mr Robinson advising that Mr Sullivan had approved the assignment for the Roberts and requesting preparation of the appropriate documentation.  The letter noted in passing that Mr Robinson was then preparing the Extension of Lease for the Roberts and had all the relevant copies of correspondence and documents.  Ms Clapp asked him also to prepare the assignment of lease documents and provided the relevant information.  This showed a proposed assignment date of 2 December 1996, J and M Roberts being the assignors and the Holland Family Trust being the assignee.  Mr Holland’s cheque of $450 for the payment of legal fees was enclosed.  Within one or two days of sending this letter, Ms Clapp received a phone call from Mr Sullivan who told her that he wanted her to ask Mr Robinson to include a Deed of Mutual Release.  Ms Clapp asked whether he was sure he wanted that included in the assignment.  Mr Sullivan said he wanted it in all the leasing documents and that she should get Mr Robinson’s view on whether it could be put in or not.  Ms Clapp said she would do that.

13. On 19 November, Ms Clapp sent a fax to Mr Robinson in which she asked for his comments on the incorporation of a Deed of Mutual Release in the assignment document.  The fax did not in terms accord with Mr Sullivan’s instructions because both she and Mr Wilson were doubtful about the use of a deed of mutual release and its automatic inclusion in every lease document.  She received no response from Mr Robinson in relation to her fax of 19 November but the mutual release was included in subsequent leasing documents which were prepared by his firm for the owners.  These were sent to Ms Clapp on 29 November 1996. They comprised a Deed of Assignment and a Variation and Extension of Lease.  Ms Clapp was not at the FPD offices when Mr Robinson’s documents arrived and Mr Wilson telephoned her to tell her they had been received and arranged to have her secretary courier them to the Roberts.  A covering letter of 29 November 1996 accompanied those documents (X 57). 

14. Clause 14 of the proposed Deed of Assignment which was intended also to operate in respect of the extended lease provided as follows:

    “14.1The Assignor and the Assignee do hereby jointly and severally release and discharge the Lessor from all actions, claims, demands, suits, proceedings and other liabilities arising directly or indirectly from any act or omission by the Lessor or its servants, agents or contractors which occurred prior to the assignment date which the Assignor or the Assignee may be otherwise able to make or bring pursuant to any rule of law or inequity or any statute absolutely.

    14.2Without limiting the generality of Clause 14.1 the Assignor shall immediately file consent orders to dismiss any action, claim, demand, suit or proceeding made against the Lessor or its servants, agents or contractors with no order for costs.

    14.3The Assignor and the Assignee acknowledge and agree the releases and discharges express or implied in this Clause 14 shall be construed as widely as possible and that the Lessor may plead the releases and discharges as a complete and effectual defence.

    14.4The parties covenant and agree with each other to execute all documents that may be required to give full effect to the provisions of this Clause 14.”

    Mrs Roberts allowed a regular customer at the shop who was a lawyer to examine the documents and the next day when he returned the deed he told her she should not sign it because of clause 14.  Mrs Roberts could not believe that the clause was in the deed because Mr Wilson had assured her it would not be something they insisted on.  She sent a copy of the documents to her solicitor to obtain legal advice by 2 December 1996.

15. Mrs Roberts provided a deed to Mr Holland on 30 November for him to examine.  They briefly discussed clause 14.  However it did not affect his rights.  He returned the deed to her signed on or about 1 December 1996.  Mrs Roberts also got her husband to sign it at this time but withheld her signature until she had received her legal advice and had a chance to discuss the matter with FPD.  Her solicitor advised her, on 2 December 1996, not to sign the documents due to the inclusion of the release clause.  Mr Pitman told her that he would personally talk to Mr Robinson.  He got back in touch with her shortly afterwards and told her that Mr Robinson had told him that the owners believed they had given Mrs Roberts “due consideration” by allowing the sale of the business to proceed.  She told Mr Pitman that she was very upset by this and very concerned because she had to decide that day without the opportunity to give the matter proper consideration.  Mr Pitman said he would try talking with Mr Robinson again. 

16. In the event, after consideration, Mrs Roberts decided that she had little option but to sign the documents.  Her lease was due to expire on 14 February 1997.  There was no prospect of renewal and without that she would have no business to sell.  She believed she had no choice but to sign the deed as it was.  She then decided to sign the deed and did so.  She felt extremely upset and angry that FPD and the owners had, in her view, put her in a situation where she had no choice but to give up her legal rights.

17. Shortly after Mrs Roberts signed the deed Mr Pitman phoned her and raised the issue of key money.  He suggested that the release clause might constitute a benefit within the definition of key money.  She told Mr Pitman she did not believe she had any choice and had signed the deed and would be returning it to FPD that day.  Mr Pitman told her that Mr Robinson had said that if she continued to pursue the litigation and the suggestion that clause 14 was a key money benefit, the owners would refuse to sign the deed.  Later on that same day, 2 December 1996, Mrs Roberts visited the offices of FPD to discuss the deed with Mr Wilson.  Both Mr Wilson and Ms Clapp were present.  She there expressed her concern over the inclusion of and insistence upon the release clause contrary to what she had been told by Mr Wilson.  When Mr Wilson asked Ms Clapp  why the release clause had been included she replied she believed it was on the owners’ instructions and that Mr Sullivan had insisted to Mr Robinson that the release clause be included.  Mr Wilson told Mrs Roberts that he would raise her concerns with Mr Sullivan and the owners to see if they would delete the clause but he couldn’t guarantee anything.  He told her she did not have to sign it then and he could take it to the owners and see how far they got.  This would mean that settlement would not occur on the due date.  However Mrs Roberts said she wanted the settlement to go through, she could not afford to have the sale of the business fail again.  Mrs Roberts handed the signed documents to Ms Clapp and then left FPD.  Shortly afterwards Mr Wilson telephoned Mr Sullivan from his office in Ms Clapp’s presence and advised him of the situation.  Notwithstanding this unfinished business the settlement of the sale of the Leeming Fish Supply took place on 2 December 1996.

1. According to Mr Sullivan, following the meeting of 13 March 1997, he had not authorised anyone at FPD to discuss with Mr Raitt a requirement for the dropping of legal action.  He understood Mr Straker was handling discussions with Mr Raitt.  He was present at the meeting of 13 March and at that time, according to Mr Sullivan, he had clearly conveyed to him that no release would be sought.  In any event, he considered the issue of Mr Raitt’s lease to be at an end.  He did not expect to authorise anyone from FPD to go back to him to extract any further offer. He said he did not receive any advice from anyone at FPD subsequent to the decision indicating that in fact there had been any further offer from Mr Raitt following his offer of $24,000. 

2. Mr Hart gave evidence that he had included reference to a mutual release clause in the Offer to Lease Proposal with respect to Shops 6 and 7A on the basis that this was a condition which was being put to all tenants (T89).  In cross-examination, however, he accepted that in his dealings with Mr Raitt it never got to the point where consideration had to be given to the release clause because other aspects of the lease had not been agreed.

3. In mid-April 1997 Ms Clapp sent Mr Raitt a letter giving him one month’s notice to vacate the premises because of their failure to negotiate suitable terms and conditions for a new lease for Shop 15 (X9).  The notice, I infer, would have been sent before Mr Meerwald withdrew his offer.  Mr Raitt spoke to Ms Clapp and Mr Straker who, he said, both told him they were surprised and disappointed that the owners were forcing him to leave.  They didn’t understand, he said, why the owners wanted him out and that he was a good tenant.  He believed that he had no choice but to relocate his business to its current premises in the Leeming Park Shopping Centre.  Had he been evicted from the premises at the Centre without being able to relocate he would have had to sell the business as plant and equipment only.  The amount he would have obtained from selling the machinery was about $70,000 which would have left a shortfall on the debt remaining on the business of approximately $70,000 to $80,000 and would have represented a reduction in the value of the business in the vicinity of $280,000.  He said it would have been very difficult, if not impossible, for him to sell the business in those circumstances particularly given that without a lease he would not have been able to sell it as a going concern.  He owed about $100,000 on the business.  He said the managing agents and the owners were fully aware of his financial situation as he was required to provide them with details of any current outstanding loans as part of the initial negotiations to obtain a lease.  Further, he had informed Mr Wilson during their discussions at the beginning of 1997 that a debt remained on the business.

4. The costs incurred by Mr Raitt in relocating his business included refitting the new shop with special plumbing, gas installation and electrical wiring which cost about $35,000.  He arranged for the newsagent within Farrington Fayre Centre to act as his agent and invested about $7,000 in a second store at the Winthrop Shopping Centre, that being a store in which no dry-cleaning would actually be carried out.  The level of his business declined by about 35% and the value of his goodwill also fell.  On his estimate he could have sold his business at Farrington Fayre early in 1997 for about $350,000.  This made his business as at February 1999 worth $150,000 based on a plant valuation of about $65,000, the remainder consisting of the remaining term of the lease and whatever goodwill then existed.  Mr Meerwald did not take up the lease proposal.  In early May 1997, Ms Clapp asked Mr Raitt if it were too late for him to return to the Centre.  He informed her that it was because of the amount he had already invested in the new premises. 

5. In or about December 1997, Mr Raitt met with Mr George Atzemis and Mr Steve Corrulli, the manager of NSC Corporate, the present managing agents for Farrington Fayre.  Mr Atzemis said he was sorry for what had happened and explained that during the period in question Mr Sullivan had been under enormous work and personal stress and was getting people to sign documents that he shouldn’t have.  Mr Atzemis told Mr Raitt that if he were interested in returning to Farrington Fayre he would get a good deal.  Again, Mr Raitt said that because of the level of investment he had already made with his current premises he was not in a position to move back to Farrington Fayre.  Ms Clapp in her evidence confirmed that in the second or third week of May 1997 she had had a conversation with Mr Raitt in which she had explored the possibility of getting him to come back to the Centre and that he had declined.  

   The Nature of the ACCC Case

6. The ACCC case against the corporate owners, CG Berbatis Holdings Pty Ltd, GPA Pty Ltd and P & G Investments Pty Ltd, is that each of them has engaged in unconscionable conduct in their dealings with the Roberts, the Ternents and Banlon Pty Ltd in contravention of s 51AA of the Trade Practices Act 1974 (Cth). It is also said that they have engaged in misleading or deceptive conduct contrary to s 52 of the Act. Their directors are alleged to have been directly or indirectly knowingly concerned in or party to those contraventions as have Brian Sullivan Property Pty Ltd and Mr Sullivan.

7. In respect of each of the tenants the case in unconscionable conduct was put on the following basis:

   1.The tenant was in a situation of special disadvantage compared with the owners (pars 51, 76 and 99 of the amended statement of claim).

   2.The owners and Mr Sullivan and his company knew or ought to have known of that special disadvantage (pars 52, 77 and 100).

   3.The imposition by the owners of conditions requiring withdrawal by the tenant of legal proceedings against the owners as a condition of the grant of a new lease was unconscionable in that:

   (i)it took advantage of one or more of the factors constituting the tenant’s special disadvantage;

   (ii)was imposed in circumstances where the tenant was exercising a legitimate and agreed right to litigate disputes between the owners and the tenant, and was an illegitimate means of persuading the tenant to enter into contractual relationships; and/or

   (iii)was imposed in circumstances where the choices available to the tenant and the tenant’s lack of relative bargaining power meant that the imposition of the condition was to leave the tenant with no choice other than to comply with it.

   (pars 53 and 54, 78 and 79 and 101, 102).

8. The case in misleading or deceptive conduct in respect of the owners’ dealings with the tenants varied with the circumstances of each tenant.  It related in each case to alleged representations in the course of negotiations between the tenant and the owners that the tenant would not be required to withdraw from legal action as a condition of obtaining a new lease.

9. In relation to the Roberts, it was said that in October 1996 Craig Wilson, acting under direction and instruction from Mr Sullivan and his company and on behalf of the owners, represented to Mrs Roberts that she and her husband would not be required to withdraw from legal action commenced against the owners but the owners would prefer it if they did withdraw and that they could not be forced to withdraw and that he would ensure that no clause requiring them to do so would be incorporated in the settlement documents for the sale of the Leeming Fish Supply to Anthony Holland.  However it is said that on 2 December 1996, Mr Wilson, acting under direction and instruction from Mr Sullivan and his company and on behalf of the owners informed Mrs Roberts in substance that the owners’ lawyer, Mr Robinson, had told him and that it was the fact that if Mrs Roberts continued to pursue legal action and the issue of “key money” the owners would refuse to sign the assignment of lease.   This was said to have been contrary to the pleaded representations.  The making of the representations were therefore said to have been misleading or deceptive in that they were untrue or alternatively there were no reasonable grounds for making them.

10. In relation to the Ternents, the representations relied upon were both to the effect that the condition requiring the Ternents to withdraw from legal proceedings against the owners as a condition of the grant of a new lease would not be pursued.  These representations were said to have been made by Mr Hart in December 1996 and by Mr Wilson in January 1997.  The representations were said to have been false as the deed eventually supplied to the Ternents by Ms Clapp on 27 February 1997 contained a clause of the kind which it was said would not be pursued.

11. In respect of the Raitts, it was said that it was the owners’ intention not to grant a new lease of Shop 15 to their company Banlon, unless it waived all legal rights against the owners.  They did not disclose their true intention to Mr Raitt and the failure to do so was misleading and deceptive. 

    Unconscionable Conduct – Section 51AA Trade Practices Act 1974

12. The general principles governing the construction of s 51AA of the Trade Practices Act have been set out in my earlier judgment in Australian Competition & Consumer Commission v CG Berbatis Holdings Pty Ltd (2000) 169 ALR 324. It is not necessary now to revisit the general discussion. The focus of this case, as pleaded by the ACCC, is on that class of unconscionable conduct which equity would remedy and which involves the unconscientious exploitation by one person of the serious disadvantage of another to secure the disposition of property or the assumption of contractual or other obligations by the weaker party. In the context of this case, the release by one party of an obligation which another may have to it would fall, at least for the purposes of equity, within the same genus as a disposition of property.

13. The circumstances which may constitute serious disadvantage or special disability for the purposes of attracting relief against unconscionable dealing may take a wide variety of forms – Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 at 474 (Deane J). In Blomley v Ryan (1956) 99 CLR 362 at 405, Fullagar J said:

    “The circumstances adversely affecting a party, which may induce a court of equity either to refuse its aid or to set a transaction aside, are of great variety and can hardly be satisfactorily classified.  Among them are poverty or need of any kind, sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy or lack of education, lack of assistance or explanation where assistance or explanation is necessary.  The common characteristic seems to be that they have the effect of placing one party at a serious disadvantage vis-à-vis the other.  It does not appear to be essential in all cases that the party at a disadvantage should suffer loss or detriment by the bargain.”

    Importantly, circumstances of inequality do not of themselves necessarily call for the intervention of equity.  It is the concept of unfair advantage being taken of serious inequality that is central to the notion of unconscionable conduct.  In Amadio at 459, Gibbs CJ said:

    “A transaction will be unconscientious within the meaning of the relevant equitable principles only if the party seeking to enforce the transaction has taken unfair advantage of his own superior bargaining power, or of the position of disadvantage in which the other party was placed.”

    The notion of “unfair advantage” taken of a special disadvantage was reflected in the judgment of Mason J at 467:

    “…if A having actual knowledge that B occupies a situation of special disadvantage in relation to an intended transaction, so that B cannot make a judgment as to what is in his own interests, takes unfair advantage of (A’s) superior bargaining power or position by entering into that transaction, his conduct in so doing is unconscionable.”

    The essential elements of the jurisdiction of equity to relieve against unconscionable dealing were restated by Deane J in Louth v Diprose (1992) 175 CLR 621 at 637:

    “…(i)  a party to a transaction was under a special disability in dealing with the other party to the transaction with the consequence that there was an absence of any reasonable degree of equality between them and (ii) that special disability was sufficiently evident to the other party to make it prima facie unfair or “unconscionable” that that other party procure, accept or retain the benefit of, the disadvantaged party’s assent to the impugned transaction in the circumstances in which he or she procured or accepted it.”

    In such a case an onus is cast upon the stronger party to show that the transaction was fair, just and reasonable. 

14. The elements of inequality, disadvantage or disability on the one hand and the unfair conduct of the stronger party taking advantage of them on the other are not, in my opinion,  to be weighed up as though independent.  It is conduct in context which has to be judged.  A party may take advantage of the disadvantage of another without necessarily acting unfairly or so unfairly, having regard to the nature of the disadvantage, that equity would intervene.  Where the disadvantage or inequality is great it may take less to discern unconscientious exploitation of it than in a situation involving less disadvantage or inequality. 

15. In the case of an owner of land who has leased that land to another and is asked to grant a new lease upon the expiry of the first, the pre-existing relationship of tenant and landlord by itself will not give rise to a situation of inequality or disadvantage likely to attract the interest of equity.  Where the tenant has consistently with the terms of the lease built up an asset by way of an on-going business which is likely to diminish significantly or cease to exist if the lease is not renewed, then the landlord may be in a substantially stronger bargaining position than the tenant.  But generalisation about such relationships is dangerous.  For whether there is inequality and the extent of it will also depend upon the size of the tenant, the quantum and reliability of the tenant’s rental payments, the extent to which the presence of that tenant will attract others and, in the context of renegotiation, the negotiating resources and advice available to the tenant.  A tenant operating a small business with a limited opportunity to sell the business may be in a particularly vulnerable position and therefore in a position approaching the level of special disadvantage or inequality which a landlord may not unfairly exploit.  It is necessary in so saying to emphasise that there is no equitable obligation on a landlord to renew a lease simply because of the vulnerability of the tenant whose lease is expiring.

16. As has been submitted for the ACCC, s 51AA of the Act proscribes certain conduct. It is not a necessary attribute of the conduct proscribed that damage be sustained. It is the conduct itself which the Act proscribes. On the other hand, the fact that a party accedes to a landlord’s demand as a condition of renewal of a lease may be a factor to be taken into account in assessing the extent of inequality in their relationship and the bargaining power of the landlord.

    The Roberts – Did the Owners Engage in Unconscionable Conduct

17. In order to address the question whether the owners contravened s 51AA in their dealings with the Roberts it is convenient first to consider whether there was a relationship of disadvantage, disability or inequality between the two parties.

18. The Roberts as lessees of Shop 14 operated a small business, the Leeming Fish Supply, the value of which to any prospective purchaser was critically dependent upon the length and security of the tenure of the premises which the Roberts could convey to that purchaser at settlement.  At the time that they first negotiated with Mr Holland between March and May 1996, they had less than twelve months of their lease to run.  A mere assignment of the balance of the term, to which they were entitled by virtue of the provisions of the Commercial Tenancy Act, could not secure for Mr Holland a tenancy of the length necessary to make his investment worthwhile.  So the sale of the business was dependent upon the owners’ willingness to grant a new lease.  They were under no obligation to do so.  Neither the Roberts nor Mr Holland were actually or potentially large tenants.  They were actual and prospective small business operators.  The Roberts, in particular, had little bargaining power when it came to dealing with the owners.  There was a marked inequality of bargaining power between them.  The Roberts suffered what might be called a “situational” as distinct from a “constitutional” disadvantage.  That is to say it did not stem from any inherent infirmity or weakness or deficiency.  It arose out of the intersection of the legal and commercial circumstances in which they found themselves.  That disadvantage, not being constitutional in character, was not able to be mitigated by the fact of legal representation which they had available to them at all material times.

19. The use of the word “special” to describe the class of disadvantage or disability which will attract the application of the doctrines of equity is not to be treated as one would treat the word in a statute.  It indicates that the requisite disadvantage will not necessarily be found in the normal run of bargaining inequality between large landlords and small tenants.  In my opinion, however, the circumstances in which a business operator on a lease may effectively lose the value of that business upon expiry of the lease does place the tenant at a special disadvantage in dealing with the owner.  This does not import any obligation on an owner to renew a lease which has expired.  The question is whether the owner has unfairly exploited the tenant’s disadvantage in a way that equity would regard as unconscionable.  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.

20. This is an area of evaluation and assessment where there are few hard and fast guides. In my opinion for the owners to insist, as they did through Mr Sullivan in this case, upon the Roberts abandoning their rights to proceed with bona fide litigation in relation to their rights under their existing lease was to engage in unconscionable conduct. The claims that they, in common with other tenants, were raising against the owners were bona fide and serious. They were taken seriously by both the tenants and by the owners. This conclusion would not prevent an owner from insisting as a condition of the renewal of a lease that a tenant not engage in frivolous or vexatious litigation against the owner. Nor would it prevent an owner from simply refusing to renew a lease in favour of a tenant with whom that owner was engaged in litigation. Each case must be considered according to its own circumstances. The personal circumstances of the Roberts are also relevant in so far as they were known to the owners or their agents. In particular, Mrs Roberts had spoken to Ms Clapp on numerous occasions over the years about her daughter’s condition and the consequent emotional strain placed on herself and her husband. Quite apart from that circumstance, in my opinion, the present case insofar as it involves the Roberts, discloses unconscionable conduct on the part of the owners on the two occasions in May 1996 and November 1996 in which they insisted upon the execution of a release clause by the Roberts as a condition of the grant of a new lease and assignment thereof to Mr Holland. It is of no consequence, in my opinion, that the detriment suffered by the Roberts may have been small in money terms. The way in which the owners acted, through their agent Mr Sullivan and his company, was a grossly unfair exploitation of the particular vulnerability of the Roberts in relation to the sale of their business. Whether or not they all had personal knowledge of the circumstances of the Roberts, they were fixed with such knowledge through that of Brian Sullivan and his company. The corporate respondents were therefore in contravention of s 51AA and the natural respondents knowingly involved in that contravention.

    The Ternents

1. The position of the Ternents in my opinion differed significantly from that of the Roberts.  There was no potential purchaser for their business.  They were at a disadvantage with respect to the owners in that their lease was coming to an end.  The business was losing money and they were significantly in arrears of their rent.  The option which they considered was relocation to another site within the Centre at a lower rent.  It was a condition of the offer of a lease for the proposed new site that they repay the arrears of rental.  It was also proposed as a condition that they abandon their entitlement to pursue proceedings in the Commercial Tribunal or otherwise against the owners.  But they did not accept that condition.  Indeed, Mr Ternent drafted a “non waiver” clause in the offer which he submitted to FPD on 6 February 1997.  This was evidently accepted.  Unfortunately the draft deeds forwarded to him by Ms Clapp on 27 February 1997 included reference, in the disclosure statement, to a release of the owners from all legal action.  At this stage FPD, through Mr Wilson, told him the clause could be ruled out.  Mr Ternent however broke off negotiations at that point.  He did not trust the owners any more and withdrew his offer to lease. 

2. While there was still in existence at this time an unrevoked general directive from the owners for the inclusion of release clauses, I am not satisfied that their agents would have insisted on its inclusion in any new lease to the Ternents. The general directive could not constitute unconscionable conduct until implemented in circumstances of disadvantage which would support that characterisation. In my opinion it was not so implemented in respect of the Ternents. In any event, I am not satisfied that there was any unfair taking advantage of such bargaining inequality as existed between owners and the Ternents. The latter did not feel constrained to accept the condition and in fact refused to accept it. In my opinion, neither the owners nor Mr Sullivan engaged in unconscionable conduct within the meaning of s 51AA in their dealings with the Ternents.

   Banlon Pty Ltd – The Raitts

3. Mr and Mrs Raitt may be said to have been in a situation more analogous to that of the Roberts than the Ternents except that they had no plans to sell the dry-cleaning business which they operated at Shop 15.  The issue for them was the need for a renewal of their lease.  In a general way it may be said that this placed them at some disadvantage in dealing with the owners.  For if no new lease were granted the business, if it were to continue, would have to be established elsewhere with accompanying removal and setup costs and the possible loss of some goodwill.  The focus of negotiations between Mr Raitt and the owners concerned the rental he was going to pay under the new lease and the possibility of expansion of his premises by taking some part of adjoining premises.  It was his own evidence that at the meeting of 13 March 1997 with Mr Sullivan, the issue of a release was not raised.  The discussion concerned possible relocation or expansion and the rental level he was prepared to pay.  He had actually misinterpreted references to mutual release clauses put to him in Offers to Lease sent by FPD.  He thought they referred to releases by tenants, part of whose premises it was proposed he takeover.

4. I am satisfied that Mr Raitt lost the tenancy of Shop 15 because he was outbid by Mr Meerwald. He never accepted any suggestion of a release clause. By this time legal advice which Mr Sullivan had received put into question the enforceability of such clauses as possible key money clauses. Mr Raitt was outbid. When he came back with a higher figure, Mr Sullivan took the view, which it was open to him to take, that he was already committed to Mr Meerwald. As it turned out Mr Raitt succeeded in deterring Mr Meerwald from taking up the tenancy by pointing out that he would continue to operate his business in the area, contrary to what Mr Meerwald said he had been given to understand by Mr Sullivan. Mr Raitt did not fit the mould of a person labouring under a serious disadvantage in his dealings with the owners. In so saying, I accept that he suffered loss and inconvenience as a result of the lease not being renewed, but that was not the outcome of unconscionable conduct, within the meaning of s 51AA.

   Misleading of Deceptive Conduct

5. The pleaded case for misleading or deceptive conduct is not sustainable in respect of any of the tenants.  The case pleaded in respect of the Roberts involved a representation by Craig Wilson in October 1996 that Mrs Roberts and her husband would not be required to withdraw from legal action commenced against the owners but that the owners would prefer it if they did withdraw, that they would not be forced to withdraw and that no clause requiring them to do so would be incorporated in the settlement documents for the sale of the Leeming Fish Supply to Anthony Holland.  The evidence in connection with this case turns substantially on the testimony of Mrs Roberts and Mr Wilson.  Mr Wilson could remember little of the relevant conversation beyond the fact that Mrs Roberts was not happy to have a release covenant in the document.  Despite her testimony, I am inclined to doubt that Mr Wilson would have made as unequivocal a statement as she attributed to him.  I am not prepared to find on the balance of probabilities that he assured her that he would make sure the clause requiring her to withdraw from all legal action would not be included in the settlement.  It was a matter on which Mr Wilson had doubts and he may well have given expression to those doubts which he had expressed to Mr Sullivan in May 1996.  In my opinion, however, it is improbable, having regard to his concern about the legality of the clauses and the debate he had had with Mr Sullivan, that he would have made an unequivocal and groundless statement that the clause would not be included in the documents Mrs Roberts would be asked to sign at settlement.

6. As to the case of misleading or deceptive conduct in relation to the Ternents, the mere inclusion in the deed eventually supplied to the Ternents on 27 February 1997 of a mutual release clause does not support characterisation of the representations made by Mr Hart in December 1996 and Mr Wilson in January 1997 as false.  I am not satisfied that Mr Hart made any misrepresentation in relation to the inclusion of a mutual release clause.  Indeed, in December 1996 he had told Mr Ternent that his withdrawal from legal action would be a requirement of the lease and in January 1997, Mr Wilson told Mr Ternent he could put a proposal forward that did not have any requirement for him to drop his action against the owners.  In the event Mr Wilson did send such an offer on 17 February 1997 with no reference to a mutual release clause.  The supply of the deed to the Ternents by Ms Clapp on 27 February 1997 may, from Mr Ternent’s point of view, have constituted a breach of a promise or a change of position on the part of the representatives of the owners.  It does not reflect misleading or deceptive conduct on their part. 

7. As to the case of misleading or deceptive conduct in relation to Banlon which turns on non-disclosure of an alleged true intention to withhold a new lease unless Banlon waived all legal rights against the owners, the question of the implementation of the owners’ general directive never really crystallised.   As I have found, it had no part to play in the ultimate resolution of the position of Banlon as a tenant.

   Conclusion

8. The application seeks declarations against each of the respondents together with injunctive relief, publication of a notice in various newspapers and publications by way of public apology, orders for compliance programs to be undertaken by the various respondents and costs. Having regard to my views about the limits of s 51AA in the circumstances I consider that the injunctive relief sought may be too widely framed. The applicant and the respondents should have time to consider whether, and if so, in what form injunctive relief should be granted. I have reservations about compelling the publication of a notice simply by way of public apology. It may be that some modified form of notice would be acceptable. There is also the question of the utility of a compliance program of which I would need to be satisfied, particularly having regard to the limited application of s 51AA.

9. In the circumstances I propose to make appropriate declarations and allow the parties time in which to bring in minutes of additional or ancillary orders and submissions as to costs.

I certify that the preceding one hundred and thirty three (133) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice French.

Associate:
Dated:              26 September 2000

Counsel for the Applicant:

Mr NW McKerracher  QC and Mr W. Bellew

Solicitor for the Applicant:

Australian Government Solicitor

Counsel for the First to Sixth Respondents:

Mr PG Clifford and Mr HR Robinson

Solicitor for the First to Sixth Respondents:

Haydn  Robinson

Counsel for the Seventh and Eighth Respondents:

Solicitor for the Seventh and Eighth Respondents:

Mr JR Johnson

Ilbery Barblett

Date of Hearing:

31 January – 3 February 2000

Date of Judgment:

26 September 2000