Pitt v Commissioner for Consumer Affairs
[2021] SASCA 24
•30 April 2021
SUPREME COURT OF SOUTH AUSTRALIA
(Court of Appeal: Civil)
PITT v COMMISSIONER FOR CONSUMER AFFAIRS
[2021] SASCA 24
Judgment of the Court of Appeal
(The Honourable Justice Doyle, the Honourable Justice Livesey and the Honourable Justice Bleby)
30 April 2021
TRADE AND COMMERCE - COMPETITION, FAIR TRADING AND CONSUMER PROTECTION LEGISLATION - CONSUMER PROTECTION - UNCONSCIONABLE CONDUCT - WHAT CONSTITUTES
The Commissioner brought proceedings against Mr Pitt, a real estate agent, in the Magistrates Court. The Commissioner alleged that Mr Pitt engaged in unconscionable conduct, and misleading or deceptive conduct, in contravention of the Australian Consumer Law (ACL). The alleged contraventions related to Mr Pitt’s dealings with Mr Hartwig, a retired pensioner, in 2012, and in particular, the purchase of a property (the Property) from Mr Hartwig. Mr Pitt denied any contravention of the ACL, and, following a three-day trial, the Magistrate dismissed the Commissioner’s claims.
The Commissioner appealed to a single Judge of the Supreme Court. The Judge allowed the Commissioner’s appeal in respect of the unconscionable conduct claim, but dismissed the appeal in respect of the claims of misleading conduct.
Mr Pitt now appeals from the decision of the single Judge. Mr Pitt contends that his Honour erred in holding that he engaged in unconscionable conduct, relying upon four grounds. The Commissioner has filed a notice of alternative contention.
Grounds 1 and 2 involve challenges to the single Judge’s conclusion that Mr Pitt engaged in unconscionable conduct under the narrow approach to statutory unconscionability. Ground 1 challenges the single Judge’s conclusion that Mr Hartwig was under a special disadvantage, while ground 2 challenges the conclusion that Mr Pitt took unconscientious advantage of Mr Hartwig’s position.
Ground 3 contends that the single Judge erred in his conclusion that Mr Pitt engaged in unconscionable conduct in that his Honour erroneously took into account that the Property was subdivided and sold “at great profit to himself and his daughter”, whereas the evidence did not support any such finding.
Ground 4 and the notice of alternative contention concern the single Judge’s conclusion that Mr Pitt acted unconscionably under the broader approach to statutory unconscionability.
Held, allowing the appeal, dismissing the Commissioner’s notice of alternative contentions, and restoring the Magistrate’s dismissal of the proceedings:
1. There was not a proper basis for the single Judge to overturn the Magistrate’s finding that the Commissioner did not establish special disadvantage on the part of Mr Hartwig.
2. In light of the above finding, there is no utility in considering whether the single Judge further erred in concluding that the Commissioner established that Mr Pitt took advantage of Mr Hartwig in the sense contemplated by the second limb of the narrow approach to unconscionability.
3. It was relevant to take into account that Mr Pitt was motivated by a desire to make a profit of the approximate magnitude of what was in fact made and enjoyed by his daughter.
4. Having regard to the totality of the circumstances, it has not been established that Mr Pitt acted unconscionably in the sense contemplated by the broader approach to unconscionability.
Australian Consumer Law ss 20, 21 & 22; Fair Trading Act 1987 (SA) s 14(1)(a); Australian Securities and Investments Commission Act 2001 (Cth) ss 12CA, 12CB & 12CC , referred to.
Australian Securities and Investments Commission v Kobelt (2019) 267 CLR 1; Lee v Lee (2019) 266 CLR 129; Robinson Helicopter Co Inc v McDermott (2016) 90 ALJR 679; Fox v Percy (2003) 214 CLR 118; Wade v Australian Railway Historical Society (2000) 77 SASR 221; Thorne v Kennedy (2017) 263 CLR 85; Warren v Coombes (1979) 142 CLR 531; Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2003) 214 CLR 51; Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392; Jams 2 Pty Ltd v Stubbings [2020] VSCA 200; Builders Pty Ltd v Commissioner for Fair Trading (2020) 383 ALR 334; Australian Competition and Consumer Commission v Medibank Private Limited [2018] FCAFC 235; Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447; Bridgewater v Leahy (1998) 194 CLR 457; Australian Competition and Consumer Commission v Lux Distributors Pty Ltd [2013] FCAFC 90; Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; Australian Competition and Consumer Commission v Quantum Housing Group Pty Ltd [2021] FCAFC 40, considered.
PITT v COMMISSIONER FOR CONSUMER AFFAIRS
[2021] SASCA 24
Court of Appeal: Doyle, Livesey and Bleby JJA
THE COURT: The respondent (the Commissioner) is a regulator responsible for administering the Australian Consumer Law (the ACL), which applies in South Australia by reason of s 14(1)(a) of the Fair Trading Act 1987 (SA).
The Commissioner brought proceedings against the appellant (Mr Zane Pitt, a real estate agent) in the Magistrates Court. The Commissioner alleged that Mr Pitt engaged in unconscionable conduct, and misleading or deceptive conduct, in contravention of the ACL. The alleged contraventions related to Mr Pitt’s dealings with a Mr Terrence Hartwig (a retired pensioner) in 2012, and in particular the purchase of a property from Mr Hartwig. Mr Pitt denied any contravention of the ACL.
At the commencement of the trial, and with the consent of the parties, the Magistrate made an order that the trial proceed on the issue of liability only, with any issues as to penalty or relief to be dealt with subsequently.
Following a three day trial, the Magistrate dismissed the Commissioner’s claims in unconscionability, and for misleading conduct.
The Commissioner appealed to a single Judge of this Court. The single Judge allowed the Commissioner’s appeal in respect of the claim of unconscionability, but dismissed the appeal in respect of the claims of misleading conduct. His Honour remitted the matter to the Magistrates Court for consideration of the issues of penalty and relief on the unconscionability claim.
Mr Pitt now appeals to this Court from the decision of the single Judge. Mr Pitt contends that his Honour erred in holding that he engaged in unconscionable conduct. The Commissioner has filed a notice of alternative contention to the effect that, even if his Honour erred in upholding the allegation of unconscionability on the basis that he did (which entailed an intermediate conclusion that Mr Hartwig was under a special disadvantage), the single Judge’s decision should be upheld on the basis that a conclusion that Mr Pitt acted unconscionably was nevertheless appropriate having regard to an evaluation of all of the relevant circumstances.
The claim of misleading conduct, having been rejected by the Magistrate and the single Judge, is no longer in issue.
It is convenient to commence with a summary of the factual narrative. We will then summarise the matters in issue at trial, the Magistrate’s reasons for dismissing the Commissioner’s claim, and the single Judge’s reasons for allowing the appeal in respect of the allegation of unconscionability. We will then set out in more detail the grounds of appeal relied upon by Mr Pitt, and the terms of the Commissioner’s notice of alternative contention, before undertaking an analysis of the issues arising for determination by this Court.
The factual background
The following summary of the evidence and facts is taken from the Magistrate’s reasons and the documents in evidence. It consists largely of a summary of the findings made by the Magistrate, together with some commentary from her Honour’s reasons as to the nature and limits of the evidence at trial.
We observe that in some respects (replicated in the summary that follows), the Magistrate merely referred to the evidence given by the relevant witness (generally Mr Pitt or Mr Hartwig) without making it express whether that evidence was accepted. It would have been better had her Honour been more explicit in relation to her view of these aspects of the evidence, either through some general observations as to the credibility and reliability of the relevant witnesses, or through more explicit findings on the issues of detail where her Honour confined herself to references to the evidence that was given. However, in most instances it is tolerably clear that her Honour intended to convey her acceptance of the relevant evidence, or at least that her Honour saw no contradictory evidence, or other consideration, that stood in the way of its acceptance. To the extent these instances are significant to the outcome of the appeal, we have addressed them later in the operative sections of these reasons.
The parties
Mr Pitt is a qualified and experienced real estate agent who operated a real estate agency in Grange for many years. In 2012, the business was trading as Pitt Real Estate. Mr Pitt’s daughter, Ms Tarnia Pitt, worked in the business as a property manager and licensed real estate agent.
In early 2012, Mr Pitt attended a seminar and some training courses offered by We Buy Houses Pty Ltd, through a Mr Rick Otton. Mr Otton taught a strategy (referred to as the ‘We Buy Houses’ strategy) which involved locating people who were struggling to sell their property through traditional methods, and then entering into an option agreement with them to purchase their property at a fixed price at some time in the future (by which time it was anticipated that the capital value of the property would have increased).
In around March or April 2012, Mr Pitt sought to implement the We Buy Houses strategy. He set up a dedicated mobile phone number, and began to display signs on vehicles with the words “We Buy Houses” and “Can’t sell your house? Don’t want your house?”, and making reference to the mobile phone number and the name “Tarn” (his daughter). Mr Pitt also placed newspaper advertisements stating “We Buy Houses. Any location, any condition, anywhere.”
Mr Hartwig was 76 years of age at the time of the trial. He was 70 years of age at the time of the events the subject of these proceedings. He had retired in August 2011, having worked most of his adult life as a labourer. His education was limited, having only undertaken one year of secondary education. He had only a limited knowledge of commercial or property transactions.
As at early 2012, Mr Hartwig was the sole registered proprietor of 87 Gedville Road, Taperoo (the Property), and had lived there for many years. He had owned the Property with his wife, who passed away in 2003, and it was subject to a mortgage in favour of the ANZ Bank that had been registered in 2004. The amount outstanding on the mortgage was about $90,000. The Property was in a state of disrepair. There was a dispute at trial as to extent of this disrepair, how much work the Property needed, and what work was carried out on the Property after the parties met.
Mr Hartwig had a gambling problem. It was apparent that his problem contributed to Mr Hartwig having spent the entirety of the approximately $55,000 that he received by way of two lump sum payments upon his retirement. By 2012, Mr Hartwig was in financial difficulty, having spent his savings and exceeded his credit account limit. He had extended his mortgage, and the ANZ bank, as mortgagee, had agreed to place him on a hardship program that permitted him to pay his mortgage at a reduced rate of $50 per week.
Mr Hartwig had been considering moving to a nearby retirement village, and wished to do so, but did not have the means to do so without selling the Property.
The initial meeting
In early May 2012, Mr Hartwig saw one of Mr Pitt’s “We Buy Houses” signs, and contacted Mr Pitt by telephone to enquire about selling the Property.
This led to a meeting between Mr Pitt and Mr Hartwig. During that meeting they discussed the price at which Mr Hartwig would be prepared to sell the Property. Mr Hartwig’s evidence was that at the time of this meeting, he recalled wanting to receive “vaguely between $200,000 and $225,000, in that bracket” for the Property. This was based on his general knowledge from discussions with friends who had properties in the area. Mr Pitt’s evidence was that Mr Hartwig wanted $200,000 for the Property. At some point, either at or shortly after that meeting, the parties agreed that the ‘sale’ price would be $200,000.
The Magistrate found that it was not clear whether, at that stage, Mr Hartwig understood that Mr Pitt was offering to acquire an option to buy the Property rather than to purchase it outright. As her Honour noted, Mr Hartwig could not recall whether that was his understanding or not. He said in his evidence that it “may have been”.
The meeting at Mr Tarbotton’s office
This initial meeting was followed by a second meeting, attended by Mr Hartwig, Mr Pitt and a Mr Tarbotton (who was Mr Pitt’s solicitor). The meeting was held at Mr Tarbotton’s office on 25 May 2012, and involved discussion of the proposed transaction in relation to the Property. According to the Magistrate, Mr Hartwig’s recollection of this meeting was extremely vague. He could not recall much of it. Mr Tarbotton’s evidence was that he explained to Mr Hartwig the effect of the proposed option agreement; that Mr Pitt could elect to purchase the property for the agreed price at any time up until a later date – possibly at that stage unspecified; and that it might be sold to a third party. At around that point in time, it also discussed and agreed that Mr Hartwig would move out of the Property to enable it to be tidied up.
Mr Tarbotton also said that he asked Mr Hartwig during the course of the 25 May 2012 meeting whether he wished to obtain his own legal advice. It was not disputed that Mr Hartwig, having been offered the opportunity to obtain independent legal advice, declined to do so. Mr Hartwig accepted in his evidence that this occurred.
The café meeting and the Option Agreement
Following the meeting at Mr Tarbotton’s office, an option agreement, based on a precedent from the We Buy Houses training material, was prepared by Mr Tarbotton and sent to Mr Pitt (the Option Agreement). The schedule to the Option Agreement had been filled out, save for the year of the expiry date for the exercise of the option in Item 1a of the schedule. Item 1a contained reference to “1 June” but without any specified year.
At a meeting in a café on 1 June 2012, Mr Pitt and Mr Hartwig signed the Option Agreement. A reference to “2016” was added to the expiry date in Item 1a, albeit that neither party to the agreement had a specific recollection of this being done. Both parties initialled this handwritten addition to the document.
The Option Agreement was a three page agreement, with two schedules. It provided for an option fee of $250 to be paid by the Grantee (Mr Pitt) to the Grantor (Mr Hartwig), in return for Mr Hartwig granting Mr Pitt an option to buy the Property, for a purchase price of $200,000 and otherwise in accordance with the terms of the standard Real Estate Institute of South Australia Contract applicable at the date of exercise of the option.
In addition to this option fee of $250, which was payable upon the execution of the Option Agreement and a contemplated residential tenancy agreement in respect of the Property, the Option Agreement provided that a further $250 was payable when Mr Hartwig had complied with “the Grantor’s works” (which were defined to mean (i) paying for, and having delivered to the Property, a miniskip, and (ii) making all reasonable efforts to clean in and around the premises on the Property as if preparing it for sale).
The Option Agreement also provided for a sum of $2,500 to be payable upon the date that Mr Pitt took possession of the Property in accordance with the contemplated residential tenancy agreement, and for an “ongoing option fee” in a sum “equivalent to the repayments due to the ANZ pursuant to [Mr Hartwig’s] mortgage over [the Property] together with all rates and taxes in respect of the property.”
All of the above option fees were expressed to be non-refundable, and to be treated as payments towards the purchase price of the Property in the event the option were to be exercised.
The option was exercisable at any time during the option period, being the period from execution of the Option Agreement through to the expiry date. As mentioned, item 1a of the schedule specified an expiry date of 1 June 2016, unless extended for a period of 12 months at the election of Mr Pitt after giving Mr Hartwig no less than one month’s written notice.
The Option Agreement was executed by Mr Pitt and Mr Hartwig, with both of their signatures witnessed by Ms Tarnia Pitt. It would seem that Mr Pitt had not anticipated executing the document on the occasion of their café meeting, but that once it became clear Mr Hartwig was prepared to do so, Mr Pitt telephoned his daughter and arranged for her to attend and witness their signatures.
The events following execution of the Option Agreement
The initial option fee of $250 was paid by Mr Pitt to Mr Hartwig upon execution of the Option Agreement.
The second payment of $250, which was to be payable upon compliance with Mr Hartwig’s obligation to carry out the Grantor’s works, was never made. Mr Hartwig’s evidence was that he did not recall agreeing to this work, although he did do some tidying up at the Property after 1 June 2012. Mr Pitt’s evidence was that Mr Hartwig was unable to comply with his obligation to clean up the Property as if preparing it for sale and that, after discussion between them, Mr Hartwig agreed to move out of the Property to enable Mr Pitt to exercise his right under the Option Agreement to carry out the clean up at the Property at his own expense.
On 2 June 2012, being the day after the execution of the Option Agreement, Mr Pitt and Mr Hartwig executed the contemplated residential tenancy agreement in respect of the Property. It provided for Mr Pitt to take possession of that property pursuant to a lease from 1 July 2012 to 1 July 2016, with the rent fixed at $100 per week, after a rent-free period of three months “to enable the home to be tidied up”.
Mr Pitt did not pay Mr Hartwig the $2,500 option fee provided for in the Option Agreement upon taking possession of the Property, or the ongoing option fee (in a sum the equivalent of Mr Hartwig’s mortgage repayments).
On about 4 July 2012, Mr Hartwig moved out of the Property. Mr Hartwig had earlier suggested that he would arrange alternative accommodation through a friend of his. However, when this did not come to pass, Mr Hartwig approached Mr Pitt for assistance. Mr Pitt then arranged for Mr Hartwig to lease a unit on Military Road, Grange. That unit was owned by Kangaloo Pty Ltd, a company controlled by Mr Pitt. The rent was $250 per week. However, instead of Mr Hartwig paying the rent on that unit periodically, it was agreed that it would be paid as a lump sum upon the sale of the Property. The lease of the unit in Grange was initially for a period of three months, but this was later extended, with Mr Hartwig ultimately remaining in the unit until he moved into a retirement home in early 2013.
From 4 July 2012, Mr Pitt undertook some work at the Property, including engaging a Mr Greg Hardwick to do work around the yard. The Magistrate noted that it had not been agreed between the parties, and the evidence did not make it clear, precisely when that work was done.
On 28 July 2012, Mr Pitt began to advertise the Property for sale, both in the newspaper and online. He did so with an advertised price range of $255,000 to $275,000. Mr Pitt’s evidence was that he did not expect to find a buyer within this price range, but that he hoped to prompt an offer which he could then use as a point from which to negotiate.
In early August 2012, a potential purchaser from interstate, Ms Jan Dass, expressed interest in the Property.
Ms Dass obtained a building inspection report dated 13 August 2012 from Mr Steve Duckworth of Inspections SA Pty Ltd (the Building Report). The Building Report identified a number of issues and defects, and included a summary at the end that listed 25 items requiring “urgent attention”. The items included some that related to the interior and others that related to the exterior or yard, and varied in nature from some which were quite minor and relatively easily remedied, through to others which were significant and likely to be difficult and expensive to remedy. The Building Report concluded with the following comments from Mr Duckworth:
I am of the opinion that this house is not fit for human habitation. I believe it could easily be subject to a Housing Improvement Act Order restricting the amount of rent monies that could be received. House should be demolished and the site redeveloped.
Following receipt of the Building Report, Ms Dass expressed no further interest in the Property.
Mr Pitt said that he decided to withdraw the Property from being advertised for sale because he was concerned that he would need to disclose the Building Report to other potential purchasers.
Shortly after receiving a copy of the Building Report, Mr Pitt sought advice from a builder, Mr Mark Katnich, about how much it might cost to remedy the issues outlined in the Building Report. He met with Mr Katnich at the Property. Mr Katnich’s evidence was that he could not recall discussing an exact figure, but thought it would be “tens of thousands of dollars”, and that it was “not worth” renovating. Mr Pitt’s evidence was that Mr Katnich indicated that the work might cost $25,000 or more and that it might be more sensible to demolish and redevelop the Property.
Mr Pitt’s evidence was that during the period following entry into the Option Agreement, he met or spoke with Mr Hartwig on at least a fortnightly basis. He said that he regularly provided money to Mr Hartwig by way of small loans, which were repayable upon sale of the Property, to assist him to meet his living expenses. On some of these occasions, Mr Pitt gave Mr Hartwig a signed receipt. Mr Hartwig acknowledged that this had occurred. In October 2012, upon learning that there was some risk that the ANZ bank might take steps to sell the Property on account of Mr Hartwig being behind in his payments, Mr Pitt made one or two payments of $50 to the bank on Mr Hartwig’s behalf.
The Addendum to the Option Agreement
At some point prior to 28 August 2012, Mr Hartwig informed Mr Pitt that he now wanted to sell the Property as soon as possible in order to use the proceeds to buy into a retirement village in which he was interested in taking up a position. He needed about $60,000 to take up this position.
Mr Pitt’s evidence was that he did not wish to exercise the option unless he could find a third party buyer prepared to pay at least $200,000. He was unable to obtain finance to exercise the option and retain the Property himself and he was pessimistic that a purchaser could be found who was prepared to pay at least $200,000. In addition, a complete renovation was, on Mr Katnich’s advice, uneconomic, and redevelopment would require development approval, funds and time.
Mr Hartwig remained eager to sell the Property so that he could purchase a unit at his chosen retirement facility. Mr Pitt advised Mr Hartwig that he was not prepared to exercise the option at that stage, and gave Mr Hartwig a copy of the Building Report, pointing out to him the summary of defects and Mr Duckworth’s opinion that the house was “not fit for human habitation”. Mr Pitt told Mr Hartwig that, due to the report, he was not prepared to exercise the option at that stage for the price agreed.
Given that the option did not expire until 2016, Mr Pitt was in a position where he could wait to exercise it at a time that suited him. Mr Hartwig, however, wanted to sell the Property as soon as possible to finance his move to a retirement village. Mr Pitt told Mr Hartwig that, in view of the Building Report, the Property was not worth the $200,000 agreed; that it was worth less than that. He told Mr Hartwig that he was prepared to exercise the option and move towards a sale as soon as possible, if the price was dropped to $175,000. Mr Hartwig agreed to this. In his evidence, Mr Hartwig said that he agreed to this because Mr Pitt “wanted to get a cheaper price”. Mr Pitt’s evidence was that Mr Hartwig agreed to it as he wished to sell the Property as soon as possible, and to do so would require the exercise of the option.
An addendum to the Option Agreement was prepared by Mr Pitt (the Addendum). It included a reduction in the sale price upon the exercise of the option from $200,000 to $175,000.
The Addendum to the Option Agreement was dated 28 August 2012 and signed by Mr Hartwig and Mr Pitt. It was drafted by Mr Pitt, and was in the following terms:
It is further agreed between the Grantor Terry Hartwig of 87 Gedville Road, Taperoo and the Grantee Zane Pitt 9 Jetty Street, Grange that the Option Agreement for the whole of the land known volume 5152 Folio 215, being more particularly known as 87 Gedville Road Taperoo, SA, 5017.
Because of a property report prepared on 13/08/12 indicating that the home needs a massive amount of work to bring the home up to the housing industry standard and therefore to be able to be rented out and further stating.
It was the opinion of the inspector that the house was not fit for human habitation and the house should be demolished.
This possibly costing more than the home is worth and that the Grantor being in no position to remedy the issues and he would prefer that Grantee try and settle the property as soon as possible, both parties have agreed to vary the agreement from the original option price of $200,000 to a new price of $175,000.
In all other conditions the agreement remains the same.
Mr Hartwig did not recall receiving or signing the document, although he accepted that he had signed it. When asked why he signed the Addendum, Mr Hartwig answered “just to hasten the sale” and “so I can get the money”. When asked if there were any other reasons, he replied “not particularly”. When asked why he agreed to lower the price, Mr Hartwig said that if he did not, he would “probably end up getting less … [b]ecause the house was not of good condition.”
Mr Pitt said that, based on the sales of other properties in Taperoo around this time for less than $150,000, he believed that Mr Hartwig well understood that if he had tried to sell the Property by traditional methods in the condition that it was in prior to execution of the Option Agreement, he was very unlikely to receive $175,000 or $200,000 for the sale of the Property, if he could find a buyer at all.
It was not disputed that one of Mr Hartwig’s reasons for wanting his money quickly was so that he could get into the retirement home he had identified. He had no other means of paying the required accommodation bond.
Mr Pitt’s evidence was that he believed that by signing the Addendum, he was agreeing to exercise the option as soon as possible. He acknowledged that this was not expressly recorded as a term of the Addendum. However, consistently with that belief, and on the same day as executing the Addendum document, he and Mr Hartwig also executed a contract for the sale of the Property, for a sale price of $175,000. The sale was said to be subject to finance, and the settlement date was recorded as 1 June 2016 (being the end of the option period). Mr Pitt said in his oral evidence that he was working towards achieving a sale as soon as he could, but that he needed time to try, with the assistance of his daughter, to obtain finance.
Also on the same day, Mr Pitt and Ms Tarnia Pitt executed a contract for the on-sale of the Property from Mr Pitt to Ms Pitt. That contract provided for a sale price of $300,000 (subject to finance), with a settlement date of 28 September 2012. Mr and Ms Pitt both gave evidence that this contract was never intended to be enforced. Rather, it formed part of a strategy intended to assist Ms Pitt to obtain finance to purchase the Property at the price of $175,000 that had been agreed with Mr Hartwig.
Immediately after signing the Addendum, and consistently with this strategy, Mr Pitt readvertised the Property online at a price of $300,000. He said he did this in the hope that a bank would see it, together with Ms Pitt’s contract, and, after kerbside valuation, lend enough money to Ms Pitt to pay Mr Hartwig $175,000 plus the associated transaction costs (including stamp duty on a purchase price of $300,000).
The Property is rented
Mr Adrian Miravitchi, the owner of a property maintenance business, was engaged by Mr Pitt to carry out repairs, rubbish removal, cleaning and other work to prepare the Property to be rented out. The work he was engaged to undertake included some of the works previously identified as necessary in the Building Report.
Mr Miravitchi recalled spending two weeks at the Property, working six days for about 10 to 12 hours each day, for which he charged Mr Pitt “a couple of grand”. He was not able to recall when the work was done and could not find any records of the work completed.
Mr Pitt’s case was that the likely timeframe in which Mr Miravitchi carried out his work was between 3 and 15 September 2012. The Commissioner’s case, on the other hand, was that the work carried out at the Property at Mr Pitt’s expense was not extensive, and occurred prior to the signing of the Addendum. The Magistrate said that she considered that the evidence supported a finding that work was carried out on the Property both before and after the Addendum; an initial clean up before advertising the Property for sale, and then some further repair and maintenance work, carried out by Mr Miravitchi, prior to the Property being leased.
The Property was advertised for rent on 11 September 2012, and the first tenant, Ms Clare Theiss, sublet it from Mr Pitt commencing on 19 September 2012 for six months. Ms Tarnia Pitt acted as the property manager. Ms Thiess made several complaints to Ms Pitt as to the state of the Property, including about the air conditioning not working and an infestation of ants.
The Property was subsequently, in March 2013, leased to a group of five recent migrants from Sri Lanka who moved in following a stay in short term emergency accommodation.
The rent paid by Ms Thiess and the Sri Lankan tenants was retained by Mr Pitt.
Ms Pitt buys the Property
Ms Pitt obtained finance for the purchase and subdivision of the Property, and on 5 December 2012, approval for subdivision was granted. The process leading to that approval had been commenced by Mr Pitt back at about the date of execution of the Addendum. Mr Hartwig accepted in his evidence that he knew Mr Pitt intended to develop, and possibly subdivide, the Property and that Mr Pitt discussed the possible subdivision with him, but was not able to recall when these discussions occurred. Mr Pitt’s evidence was that there were ongoing discussions about this possibility between him and Mr Hartwig, including prior to execution of the Addendum.
Mr Pitt and Mr Hartwig engaged Westley DiGiorgio to act as joint conveyancer for the sale of the Property. On 13 December 2012, the conveyancer from that firm, Ms Sylvia Wimhurst, made a file note of her telephone discussion with Mr Hartwig in which she recorded that he was “okay with it all, … didn’t hold a gun to his head” and understood the sale price was $175,000.
On 17 December 2012, Mr Pitt executed a deed of assignment in favour of Ms Pitt, assigning to her his contract for the sale of the Property for $175,000 in exchange for an assignment fee of $125,000. This fee was never paid, and was (according to the evidence of Mr Pitt and Ms Tarnia Pitt) never intended to be paid.
Settlement took place on 20 December 2012. The $6,750 rent owed by Mr Hartwig for the Grange unit was brought to account, less the $100 per week rent owed by Mr Pitt for the Property. The monies loaned to Mr Hartwig, and referred to in a written acknowledgment in the sum of $6,500, were also accounted for. After payment of $92,192 to the ANZ bank (as the outstanding amount on Mr Hartwig’s mortgage) and some other minor adjustments, the net proceeds from the sale price of $175,000 were $71,051.
Mr Hartwig received the net proceeds and moved into the retirement home of his choice in early 2013.
The Property is redeveloped
On 18 December 2012, an application to the local Council to demolish the house on the Property, and construct two new dwellings, was made on behalf of Ms Pitt. Approval was granted on 24 April 2013.
Building contracts for two new houses were signed by Ms Pitt in early May 2013, with the construction taking place over the remainder of that year and during January 2014. The new houses were advertised for sale from 24 January 2014. One house sold on 12 May 2014 for $385,000, and the other in January 2015 for $380,000, following the resolution of an encroachment issue with a neighbouring property.
The redevelopment was funded in part by Mr Pitt through his company, Kaza Pty Ltd, which paid for the development approval costs, rates and taxes, legal fees associated with the encroachment, utilities and a number of items not supplied by the builder. The construction costs paid to the builder were met by way of loans in Ms Pitt’s name. The evidence suggested that, after costs, the profit made on the subdivision and redevelopment was no more than about $53,000 (putting to one side the $125,000 assignment fee). Mr Pitt suggested, based upon information from his accountant, that the profit was more likely about $40,000.
The Commissioner’s claim
In his claim, the Commissioner alleged both unconscionability and misleading conduct on the part of Mr Pitt.
The claim commenced with a narrative of the material facts that pleaded the substance of the dealings between Mr Pitt and Mr Hartwig as set out above. Then, in paragraphs [31] and [32], the Commissioner pleaded his allegation of unconscionability in the following terms:
31.By reason of the matters pleaded in paragraphs 1-29 above and each of the particulars that follow, the defendant, in connection with the acquisition or possible acquisition of services, engaged in conduct that was, in all the circumstances, unconscionable contrary to s 21 of the ACL:
31.1 By executing the Option Agreement referred to in paragraph 7 above and the Addendum to the Option Agreement referred to in paragraph 16 above, the defendant acquired a service from Mr Hartwig, namely rights and interests in real property (the Taperoo property); and
31.2 From all of his dealings with Mr Hartwig, the defendant knew, or ought to have known, that Mr Hartwig was an aged pensioner with limited understanding of the implications of the option agreement and sales contracts; and
31.3 By reason of the fact that Mr Pitt was a real estate agent:
31.3.1Mr Hartwig’s bargaining position relative to Mr Pitt was very weak including in respect of ascertaining the true value of the Taperoo property; and
31.3.2The defendant knew or ought to have known of the weakness of Mr Hartwig’s bargaining position relative to his bargaining position; and
31.4 The defendant took advantage of, or obtained advantage from, Mr Hartwig’s bargaining position in:
31.4.1Entering into a four year option agreement to purchase the Taperoo property for $200,000 when he knew, or ought to have known, that (i) the property’s value would increase substantially in that period in circumstances where the consideration for that option was only a notional sum and (ii) the effect of the arrangement was to allow the defendant to exclusively deal with any possible third party purchasers or to exclusively develop the property for his own benefit; and
31.4.2Reducing the purchase price of the Taperoo property from $200,000 to $175,000 by making the Representation/s when he knew, or ought to have known, that the Representation/s were false or misleading; and
31.4.3On the day prior to obtaining Mr Hartwig’s consent to reduce the purchase price to $175,000, the defendant made an application to the Council for subdivision of the land on behalf of Mr Hartwig but without his knowledge or consent; and
31.4.4In circumstances where he subsequently made a profit of $125,000 by assigning his interest to his daughter Ms Pitt, who in turn made a substantial profit through developing the property; and
31.4.5On the day after he obtained Mr Hartwig’s consent to reduce the purchase price to $175,000, the defendant amended the online advertisement for the Taperoo property to an asking price of $300,000; and
31.5 The defendant engaged in unfair business tactics by:
31.5.1Having Mr Hartwig sign an Option Agreement which gave the defendant the right to purchase the property at any time between 1 June 2012 and 1 June 2016 for $200,000; and
31.5.2Providing Mr Hartwig with the report prepared by Inspections SA Pty Ltd to pressure Mr Hartwig to agree to reduce the sale price of the Taperoo Property; and
31.5.3By making the Representation/s in circumstances where he knew, or ought to have known, that the Representation/s were false or misleading; and
31.5.4Applying for subdivision of the land on behalf of Mr Hartwig without his knowledge or approval.
32.In the alternative, by reason of the matters pleaded in paragraphs 1-29 and 31.1-31.5 above, the defendant engaged in conduct that was unconscionable, within the meaning of the unwritten law, contrary to s 20 of the ACL (SA).
The claim then pleaded allegations of misleading conduct based upon the representations made by Mr Pitt, through his reliance upon the Building Report in connection with the execution of the Addendum, to the effect that the Property needed a “massive amount of work” in order for it to be rented out; was not fit for human habitation; required work that would possibly cost an amount exceeding its value; and by reason of the matters in the Building Report had reduced in value by at least $25,000. These representations were defined in the claim (and cross-referenced in the unconscionability pleading extracted above) as “the Representations”.
Mr Pitt denied that he engaged in any unconscionable or misleading conduct.
Before summarising the conduct of the trial and the Magistrate’s treatment of the Commissioner’s claims, it is useful to set out the terms of the proscription against unconscionable conduct in the ACL.
Unconscionable conduct under the ACL
The proscription against unconscionable conduct in the ACL appears in ss 20 – 22:
20 Unconscionable conduct within the meaning of the unwritten law
(1) A person must not, in trade or commerce, engage in conduct that is unconscionable, within the meaning of the unwritten law from time to time.
Note: A pecuniary penalty may be imposed for a contravention of this subsection.
(2) This section does not apply to conduct that is prohibited by section 21.
21 Unconscionable conduct in connection with goods or services
(1) A person must not, in trade or commerce, in connection with:
(a) the supply or possible supply of goods or services to a person; or
(b)the acquisition or possible acquisition of goods or services from a person;
engage in conduct that is, in all the circumstances, unconscionable.
(2) This section does not apply to conduct that is engaged in only because the person engaging in the conduct:
(a)institutes legal proceedings in relation to the supply or possible supply, or in relation to the acquisition or possible acquisition; or
(b)refers to arbitration a dispute or claim in relation to the supply or possible supply, or in relation to the acquisition or possible acquisition.
(3) For the purpose of determining whether a person has contravened subsection (1):
(a)the court must not have regard to any circumstances that were not reasonably foreseeable at the time of the alleged contravention; and
(b)the court may have regard to conduct engaged in, or circumstances existing, before the commencement of this section.
(4) It is the intention of the Parliament that:
(a)this section is not limited by the unwritten law relating to unconscionable conduct; and
(b)this section is capable of applying to a system of conduct or pattern of behaviour, whether or not a particular individual is identified as having been disadvantaged by the conduct or behaviour; and
(c)in considering whether conduct to which a contract relates is unconscionable, a court’s consideration of the contract may include consideration of:
(i) the terms of the contract; and
(ii)the manner in which and the extent to which the contract is carried out;
and is not limited to consideration of the circumstances relating to formation of the contract.
22 Matters the court may have regard to for the purposes of section 21
(1) Without limiting the matters to which the court may have regard for the purpose of determining whether a person (the supplier) has contravened section 21 in connection with the supply or possible supply of goods or services to a person (the customer), the court may have regard to:
(a)the relative strengths of the bargaining positions of the supplier and the customer; and
(b)whether, as a result of conduct engaged in by the supplier, the customer was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the supplier; and
(c)whether the customer was able to understand any documents relating to the supply or possible supply of the goods or services; and
(d)whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the customer or a person acting on behalf of the customer by the supplier or a person acting on behalf of the supplier in relation to the supply or possible supply of the goods or services; and
(e)the amount for which, and the circumstances under which, the customer could have acquired identical or equivalent goods or services from a person other than the supplier; and
(f)the extent to which the supplier’s conduct towards the customer was consistent with the supplier’s conduct in similar transactions between the supplier and other like customers; and
(g) the requirements of any applicable industry code; and
(h)the requirements of any other industry code, if the customer acted on the reasonable belief that the supplier would comply with that code; and
(i)the extent to which the supplier unreasonably failed to disclose to the customer:
(i)any intended conduct of the supplier that might affect the interests of the customer; and
(ii)any risks to the customer arising from the supplier’s intended conduct (being risks that the supplier should have foreseen would not be apparent to the customer); and
(j)if there is a contract between the supplier and the customer for the supply of the goods or services:
(i)the extent to which the supplier was willing to negotiate the terms and conditions of the contract with the customer; and
(ii) the terms and conditions of the contract; and
(iii)the conduct of the supplier and the customer in complying with the terms and conditions of the contract; and
(iv)any conduct that the supplier or the customer engaged in, in connection with their commercial relationship, after they entered into the contract; and
(k)without limiting paragraph (j), whether the supplier has a contractual right to vary unilaterally a term or condition of a contract between the supplier and the customer for the supply of the goods or services; and
(l) the extent to which the supplier and the customer acted in good faith.
(2) Without limiting the matters to which the court may have regard for the purpose of determining whether a person (the acquirer) has contravened section 21 in connection with the acquisition or possible acquisition of goods or services from a person (the supplier), the court may have regard to:
(a)the relative strengths of the bargaining positions of the acquirer and the supplier; and
(b)whether, as a result of conduct engaged in by the acquirer, the supplier was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the acquirer; and
(c)whether the supplier was able to understand any documents relating to the acquisition or possible acquisition of the goods or services; and
(d)whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the supplier or a person acting on behalf of the supplier by the acquirer or a person acting on behalf of the acquirer in relation to the acquisition or possible acquisition of the goods or services; and
(e)the amount for which, and the circumstances in which, the supplier could have supplied identical or equivalent goods or services to a person other than the acquirer; and
(f)the extent to which the acquirer’s conduct towards the supplier was consistent with the acquirer’s conduct in similar transactions between the acquirer and other like suppliers; and
(g) the requirements of any applicable industry code; and
(h)the requirements of any other industry code, if the supplier acted on the reasonable belief that the acquirer would comply with that code; and
(i)the extent to which the acquirer unreasonably failed to disclose to the supplier:
(i)any intended conduct of the acquirer that might affect the interests of the supplier; and
(ii)any risks to the supplier arising from the acquirer’s intended conduct (being risks that the acquirer should have foreseen would not be apparent to the supplier); and
(j)if there is a contract between the acquirer and the supplier for the acquisition of the goods or services:
(i)the extent to which the acquirer was willing to negotiate the terms and conditions of the contract with the supplier; and
(ii) the terms and conditions of the contract; and
(iii)the conduct of the acquirer and the supplier in complying with the terms and conditions of the contract; and
(iv)any conduct that the acquirer or the supplier engaged in, in connection with their commercial relationship, after they entered into the contract; and
(k)without limiting paragraph (j), whether the acquirer has a contractual right to vary unilaterally a term or condition of a contract between the acquirer and the supplier for the acquisition of the goods or services; and
(l) the extent to which the acquirer and the supplier acted in good faith.
The trial
While the Commissioner pleaded a claim of unconscionability under s 20 (being unconscionability within the meaning of the unwritten law),[1] he ultimately abandoned any reliance upon that limb of his pleaded case. The Commissioner’s claim of unconscionability was confined to one of statutory unconscionability in contravention of s 21. As the allegation of unconscionability related to the acquisition,[2] rather than supply of services, the allegation fell to be decided having regard to the matters listed in ss 22(2)(a) – (l) rather than ss 22(1)(a) – (l). Whilst the Magistrate and single Judge both mistakenly referred to the latter rather than the former in their reasons, it was accepted before this Court that nothing turns on this slip given the equivalence between the two.
[1] See paragraph [32] of the Commissioner’s claim.
[2] See paragraphs [31] and [31.1] of the Commissioner’s claim.
As mentioned earlier, the trial took place over three days. The Commissioner called evidence from Mr Hartwig, Mr Parry (an investigator), Ms Theiss (who leased the Property from Mr Pitt in late 2012) and Mr Waterhouse (an expert property valuer). Mr Pitt gave evidence in the defence case. He also called evidence from Mr Tarbotton (his solicitor in connection with the Option Agreement), Mr Katnich (a builder who gave Mr Pitt some assistance and advice in relation to the clean-up and development of the Property), Mr Miravitchi (who also did some work repairing and cleaning-up the Property), Mr Duckworth (who prepared the Building Report) and Ms Pitt. The Magistrate had the benefit of lengthy written closing addresses from the parties, including some supplementary submissions dealing with the implications of the decision of the High Court in Australian Securities and Investments Commission v Kobelt[3] (which was handed down after closing addresses had been completed).
[3] Australian Securities and Investments Commission v Kobelt (2019) 267 CLR 1.
The Magistrate’s reasons
The Magistrate commenced her reasons by summarising the factual background in substantially the terms recounted earlier in these reasons.
When addressing the Commissioner’s allegation of unconscionability, the Magistrate noted the parties’ agreement that Mr Pitt was acting in trade or commerce in his dealings with Mr Hartwig in 2012, and that Mr Pitt’s transactions with Mr Hartwig, and implementation of his “We Buy Houses” strategy, related to the acquisition of services for the purposes of the ACL.
The Magistrate then set out a summary of some of the basic principles governing the approach to unconscionability, followed by a review of the decision of the High Court in Australian Securities and Investments Commission v Kobelt[4] in respect of the cognate proscription against unconscionable conduct in ss 12CB and 12CC of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act). Her Honour noted what she described as a tension between the “narrower” concept of statutory unconscionability adopted by Kiefel CJ, Bell and Keane JJ (which involved establishing, in accordance with the ordinary principles governing general law unconscionability, both the existence of a person under a special disadvantage, and that the defendant took unconscientious advantage of that person’s special disadvantage), and the “broader” concept of unconscionability adopted by Gageler, Nettle, Gordon and Edelman JJ (which did not require establishing a special disadvantage and unconscientious taking advantage).
[4] Australian Securities and Investments Commission v Kobelt (2019) 267 CLR 1.
The Magistrate noted the Commissioner’s submission that he had sought to invoke the broader concept of statutory unconscionability in his claim against Mr Pitt. However, her Honour rejected that submission, holding that the Commissioner had conducted his case on the basis of the narrower concept of statutory unconscionability. Her Honour explained:
[87]Both the Commissioner and Mr Pitt have at times conflated statutory and equitable concepts of unconscionability in their submissions. The Commissioner’s pleadings in respect to s 21 of the ACL at [31] of the Claim do not refer to Mr Hartwig being at a “special disadvantage”, and Mr Pitt taking “unconscientious advantage” of said “special disadvantage.” It is pleaded, however, that “[t]he defendant took advantage of, or obtained advantage from, Mr Hartwig’s bargaining position.” The Commissioner’s written closing submissions, however, refer to Mr Hartwig being in a position to special disadvantage vis-à-vis Mr Pitt.
…
[90]I am not satisfied that the Commissioner has established that Mr Pitt engaged in unconscionable conduct in contravention of s 21(1) of the ACL.
[91]On balance, I am not satisfied that the Commissioner’s submission that it has sought to invoke the broader concept of unconscionability in these proceedings can be reconciled with the way it conducted its case. I accept Mr Pitt’s submission that the Commissioner conducted its case on the basis that the demonstration of a special disadvantage was required to make out its case of statutory unconscionability.
The Magistrate then held that the Commissioner had not made out a case of narrow unconscionability. Her Honour explained:
[92]On the narrower approach, as preferred by Kiefel CJ and Bell JJ in the plurality in Kobelt, it is apparent that the pleaded case as presented by the Commissioner cannot support a finding that Mr Pitt contravened s 21 of the ACL, due to the absence of the requisite special disadvantage and unconscientious taking advantage of that special disadvantage. The Commissioner has not demonstrated to this Court that Mr Hartwig was at any special disadvantage vis-à-vis Mr Pitt. The Commissioner’s relevant Supplementary Submissions do not provide any basis upon which a conclusion can be made that Mr Hartwig was under any special disadvantage. Mr Hartwig was clearly in a weaker bargaining position than Mr Pitt in the course of their dealings, by reason of his age and relative inexperience in commercial dealings, but that is not enough to establish a special disadvantage. Nettle and Gordon JJ aptly reasoned in Kobelt:
“It is not possible to exhaustively identify what amounts to a special disadvantage. However, the essence of the relevant weakness is that it “seriously affects” the innocent’s party ability to safeguard their own interests … It is not sufficient that the matters give rise to only to an inequality in bargaining power.”[5]
[93]Notwithstanding that Mr Hartwig was in a relatively weaker bargaining position than Mr Pitt in their dealings, due to, amongst other things, his age and lack of experience in real property transactions, this did not amount to a special disadvantage. There is no “special” character to this inequality in bargaining power. I find that Mr Hartwig was not at any “special disadvantage” vis-à-vis Mr Pitt in a way that “…seriously affect[ed]” his ability to safeguard his own interests in entering into the Option Agreement and the Addendum.
[5] Australian Securities and Investments Commission v Kobelt (2019) 267 CLR 1 at [147].
However, the Magistrate also went on to consider the broader concept of statutory unconscionability. In so doing, her Honour addressed the non-exhaustive list of factors to which the court may have regard in s 22(2) of the ACL.
In relation to s 22(2)(a) (relative strengths of bargaining positions), the Magistrate accepted that there was a disparity in the bargaining positions and sophistication of Mr Pitt and Mr Hartwig. She observed that Mr Pitt was a very experienced real estate agent who, on his own case, claimed to be an expert qualified to give evidence as to the value of the Property. Mr Pitt also had the assistance of Mr Tarbotton, the lawyer he engaged to act on his behalf in the transaction, and who drafted the Option Agreement.
Her Honour did not accept that Mr Pitt’s bargaining position was weakened in any material way by the fact that this was his first experience using an option agreement to purchase a property. To the contrary, the Magistrate considered that Mr Pitt’s bargaining position was relatively strengthened by his extensive experience in other real estate transactions, and the specific training he had received from Mr Otton in relation to the ‘We Buy Houses’ strategy.
The Magistrate contrasted the position of Mr Hartwig as a 70 year old aged pensioner “in substantial financial difficulty”, and with “a background of limited education and experience in real estate and commercial transactions.” Her Honour noted that while this inequality in bargaining power was not of itself sufficient to establish unconscionability, it nevertheless “provides the context in which the remaining factors are to be assessed.”[6]
[6] Citing Australian Securities and Investments Commission v Kobelt (2019) 267 CLR 1 at [244].
In relation to s 22(2)(b) (conditions not reasonably necessary for the protection of the legitimate interests of Mr Pitt), the Magistrate noted the Commissioner’s submission that the option term of four years was extraordinary. But after referring to the suggestion by Gageler J in Paciocco v Australia and New Zealand Banking Group Ltd[7] to the effect that the primary operation of the cognate provision in s 12CB(2)(b) of the ASIC Act was concerned not so much with the substantive content of the condition as with the conduct of the defendant requiring compliance with the relevant condition, and the absence of any evidence or facts establishing conduct of the requisite nature, her Honour found that this subsection had “not been enlivened.”
[7] Paciocco v Australia and New Zealand Banking Group Ltd (2016) 258 CLR 525 at [185].
In relation to s 22(2)(c) (Mr Hartwig’s ability to understand the Option Agreement and the Addendum), the Magistrate held that the Commissioner had not established that Mr Hartwig did not understand the basic elements of the agreements he signed. Her Honour explained:
[107] … It was apparent that Mr Hartwig’s evidence in this regard was substantially affected by his age, and the fact that six years had passed since the relevant events. His recollection of events was poor. When it was put to Mr Hartwig that Mr Pitt had explained what an Option Agreement was he said ‘It may have happened’. He was later asked whether it was possible he understood the Option Agreement at the time but now cannot remember it, he replied ‘Well, time’s past I’ve just forgotten sorry’.
[108] Mr Tarbotton gave detailed evidence of his meeting with Mr Hartwig and his instructions from Mr Pitt ‘… to interview Mr Hartwig to determine what he [Mr Hartwig] thought the arrangement was …’ and ‘I recall that Mr Hartwig shook my hand quite firmly. I recall that he was quite confident and direct in how he answered my questions. Certainly he gave me the impression that he understood what I was saying …’.
[109] On the balance of the evidence, particularly the evidence of Mr Hartwig, Mr Tarbotton and Mr Pitt, and the contemporaneous file note prepared by Mr Tarbotton, I am not satisfied that the Commissioner has established that Mr Hartwig did not have an understanding of the “basic elements” of the Addendum and the Option Agreement and the differences between them.
In relation to s 22(2)(d) (any undue influence, pressure or unfair tactics), the Magistrate noted the absence of any submission or evidence in support of undue influence or pressure, and said that this “bears against a finding of unconscionable conduct”. The Magistrate noted the Commissioner’s submission that the Option Agreement of itself amounted to an unfair business tactic and was exploitative, on the basis that it created a legal relationship that placed Mr Hartwig in a position of special disadvantage vis-à-vis Mr Pitt. However, the Magistrate rejected this submission based upon her view that it had not been established that Mr Hartwig was under any special disadvantage, or that Mr Pitt took advantage of any such special disadvantage. While accepting that the use of an option agreement over a residential property in which the grantor was residing was “not common”, the Magistrate held that this of itself did not render it an “unfair tactic” or a marker of unconscionability.
The next topic addressed by the Magistrate was s 22(2)(e) (the amount for which, and circumstances in which, the identical or equivalent services could have been supplied to a person other than Mr Pitt). The Magistrate observed that while any inequality in price and benefit would not be sufficient to prove unconscionability, it was relevant in the context of an overall evaluation of the conduct said to be unconscionable. While noting that the Commissioner made submissions in relation to both the purchase price for the Property under the Option Agreement, and the fees paid by Mr Pitt for the option, the Magistrate dealt separately with the latter in the context of her consideration of s 22(2)(j)(iii).
The Magistrate accepted the evidence of the expert called by the Commissioner, Mr Waterhouse, who assessed the value of the Property at $260,000. Mr Pitt had sought to challenge this value both through his own evidence, and through his challenges to Mr Waterhouse’s approach and valuation. While accepting Mr Pitt’s entitlement and qualifications to give expert evidence on this topic, the Magistrate found that the market value of the Property as at June 2012 was $260,000.
While accepting that this value was relevant to the issue of unconscionability, the Magistrate added that the amount Mr Hartwig may have obtained for the Property was not the only consideration relevant for the purposes of s 22(2)(e). Her Honour elaborated:
[126] Mr Pitt, in his evidence and in his submissions, characterised the Option Agreement as offering both advantages and disadvantages to Mr Hartwig, as compared to a traditional sales contract. Mr Pitt submitted that the agreement offered Mr Hartwig the opportunity to sell the property at a price that he was happy with, in circumstances where there may have been no interested buyers if the property had been put on the market without the clean-up works and repairs. It was a ‘convenient’ way for Mr Hartwig to sell the property and at a time which enabled him to acquire the retirement unit he wished to purchase. No evidence was tendered by the Commissioner that he could have acquired identical services elsewhere. Mr Pitt also submitted that the ongoing option fee gave Mr Hartwig the ability to meet his ongoing mortgage obligations, and avoid potential foreclosure. In the circumstances I find that [s 22(1)(e)] has not been enlivened.
The Magistrate next considered the matters in ss 22(2)(j)(i) – (iv). In relation to s 22(2)(j)(i) (the extent to which Mr Pitt was willing to negotiate the terms and conditions), the Magistrate noted the omission to include in the Addendum the term that was most critical to Mr Hartwig, namely the obligation on the part of Mr Pitt to exercise the option. But the Magistrate accepted that there was no evidence upon which to find that Mr Pitt was not willing to include this term; and, indeed, he in fact exercised the option that same day. As to the other terms, such as the purchase price and option fees, the Magistrate said that there was no evidence that Mr Pitt was not willing to negotiate. Her Honour observed that “[t]he fact that Mr Hartwig apparently did not seek to negotiate does not necessarily mean Mr Pitt was unwilling to do so.”
In relation to ss 22(2)(j)(ii) and (iii) (the terms and conditions of the contract and the conduct of Mr Pitt and Mr Hartwig in complying with the same), the Magistrate noted the Commissioner’s submission to the effect that the Option Agreement and Addendum were exploitative. In particular, the Commissioner submitted that the option fees payable by Mr Pitt (as summarised earlier in these reasons) were notional and not adequate consideration for the benefit received by him. The Commissioner also relied upon the failure of Mr Pitt to pay the $2,500 option fee, or the ongoing option fee. While Mr Pitt conceded that he did not pay the $2,500 option fee upon taking possession of the Property on 1 July 2012, he said that he did not do so because in his view “the deal had changed” following what he described as a deviation from the original agreement on 1 July 2012. And while Mr Pitt also conceded that he did not pay the ongoing option fee, he said that he regularly loaned Mr Hartwig amounts of money (totalling $4,650) for his living expenses, and that he made one or two $50 mortgage repayments directly to the ANZ bank on Mr Hartwig’s behalf. The Magistrate explained her conclusion on these matters in the following terms:
[135] In my view that evidence does not support a finding that the terms of the Option Agreement or the Addendum were exploitative. No evidence was called as to the reasonableness or otherwise of the fees payable. Instead the Commissioner’s focus was on how the terms were reached. I accept that the non-compliance, by Mr Pitt, with some of the payment terms, is a relative consideration which must be weighed against, and with, others. However, this is not an action that relies on, or pleads, a breach of contract.
The Magistrate said that there was no pleading or evidence of conduct that fell under s 22(2)(j)(iv) (conduct engaged in by Mr Pitt or Mr Hartwig, in connection with their commercial relationship, after entry into their contract).
The Magistrate also noted, in relation to s 22(2)(l), that there was no suggestion by the Commissioner that Mr Pitt had acted other than in good faith. Her Honour considered that this weighed against any finding that Mr Pitt acted unconscionably for the purposes of s 21.
The Magistrate ultimately held that the Commissioner had not established unconscionable conduct on the part of Mr Pitt, even under the broad approach to statutory unconscionability. Her Honour explained:
[140] On the broad approach to s 21, I have considered above the factors outlined in s 22(1) of the ACL against the background of the ambit of unconscionability at equity. On balance, after weighing these factors up, I am not satisfied that Mr Pitt engaged in conduct in his dealings with Mr Hartwig that was ‘… so far outside societal norms of acceptable commercial behaviour as to warrant condemnation as conduct that is offensive to conscience.’[8] No evidence was tendered by the Commissioner as to how the court may determine the conduct was far outside the societal norms of acceptable commercial behaviour. No evidence was tendered regarding the concept of the acceptable commercial behaviour in the context of transactions of this type. Nevertheless, I consider that the evidence, as a whole, establishes that whilst Mr Pitt’s conduct was of a business and commercial nature intended to achieve a profit, there is no basis for a finding that the conduct was ‘so far outside societal norms’. Accordingly, I find that the Commissioner has failed to establish that Mr Pitt, in his dealings with Mr Hartwig, breached s 21(1) of the ACL.
[8] Australian Securities and Investments Commission v Kobelt (2019) 267 CLR 1 at [92].
The Magistrate then turned to address the Commissioner’s claim of misleading conduct based upon the representations alleged to have been made by Mr Pitt, through his reliance upon the Building Report in connection with the execution of the Addendum, to the effect that the Property needed a “massive amount of work” in order for it to be rented out; required work that would possibly cost an amount exceeding its value; and, by reason of the matters in the Building Report, had reduced in value by at least $25,000.[9]
[9] The Commissioner ultimately accepted that Mr Pitt did not make a representation that the Property was not fit for human habitation, and this element of the pleaded case was consequently not considered by the Magistrate.
We shall deal only briefly with the misleading conduct allegations, as they are no longer of any direct relevance.
The Magistrate accepted that the first and second of these representations were made by Mr Pitt, but did not accept that the third representation was made. Her Honour accepted that the first two representations were as to the future, with the result that the issue for determination was whether Mr Pitt had reasonable grounds for making those representations. Her Honour found that Mr Pitt had reasonable grounds for the first and second representations, and so was not satisfied that Mr Pitt engaged in misleading conduct in contravention of the ACL.
For the reasons summarised above, the Magistrate concluded that the Commissioner had not made out any contravention of the ACL by Mr Pitt, and hence that no right to a civil pecuniary penalty or compensation arose. Her Honour thus dismissed the Commissioner’s claim.
The single Judge appeal
The Commissioner appealed from the Magistrate’s decision to a single Judge of this Court. That appeal relied upon five grounds. The first and second grounds challenged the Magistrate’s rejection of the Commissioner’s allegation of statutory unconscionability, based upon the narrow and broad conceptions of unconscionability respectively. The third and fourth grounds challenged the Magistrate’s rejection of the Commissioner’s allegations of misleading conduct, while the fifth ground impugned the Magistrate’s failure to give reasons for accepting Mr Pitt’s evidence.
The single Judge allowed the appeal on the first two grounds, but dismissed the grounds of appeal based upon the alleged misleading conduct and failure to give reasons.
In concluding that, even on the narrow approach, unconscionability had been established, the single Judge reasoned:
[44] The Magistrate found that although Mr Hartwig was in a relatively weaker bargaining position than the respondent due to his age and inexperience in property transactions, this did not amount to special disadvantage. In my view, I find that the Magistrate has clearly erred in that finding. She has not considered other obvious matters of disadvantage which seriously affected Mr Hartwig’s ability to protect his own best interests in relation to the sale of his land. The Magistrate has not factored in the vulnerability of his position with his dependence on the respondent. Mr Hartwig wanted to move into a retirement village as soon as possible and was in a parlous financial position. He was not only dependent upon the respondent for the sale of his house, but was also renting from him during the period of the time of the Option Agreement. Furthermore, the very nature of the Option Agreement, even before the Addendum Agreement, put Mr Hartwig at a disadvantage. For receiving the mere sum of $250 (the extra $250 and the $2,500 were not paid), he was at the whim of the respondent for four years as to when his house was going to be sold. He was at the disadvantage of not being able to benefit from any inflation. The period of four years could only be to the advantage of the respondent who could wait for an opportune time to execute the Option Agreement, or reject it if he saw fit.
[45] I further find that to then drop the price of the property by $25,000 by virtue of the Addendum Agreement was unconscionable. There was clear evidence before the Magistrate that at the time, the valuation of the property would have been in the vicinity of $260,000. I find that Mr Hartwig was in a totally vulnerable position of disadvantage to which the respondent benefited from by obtaining the property at a reduced price. Further, through a series of transactions as set out above, the respondent then managed to subdivide the property and sell it at a great profit to himself and his daughter. On any version of the law, I find that was unconscionable behaviour.
In relation to the broad approach to unconscionability, the single Judge reasoned:
[46] Having found that to be so, it follows that on the broader view, as articulated in Kobelt’s case, the behaviour of the respondent was unconscionable. Those matters that amount to unconscionable behaviour under the narrow view also apply to the broader view. Mr Hartwig was at a special disadvantage because of his age, inexperience and dependence upon the respondent to sell his house so he could quickly move into a retirement village. The terms of the Option Agreement did not protect his legitimate interests and offered him no material advantage. On any view, the terms of the Option Agreement could only amount to an unfair business tactic which was exploited by the respondent.
The single Judge accordingly allowed the appeal on grounds 1 and 2, and remitted the matter to the Magistrates Court for determination as to what orders by way of penalty or compensation should be made.
The single Judge went on to dismiss grounds 3, 4 and 5, which had sought to challenge the Magistrate’s rejection of the Commissioner’s case alleging misleading conduct on the part of Mr Pitt, and the Magistrate’s failure to give reasons for accepting Mr Pitt’s evidence. The Commissioner has not sought to agitate these aspects of the case any further. Only the finding of unconscionable conduct remains in dispute on the appeal to this Court.
Issues arising on appeal
In this Court, Mr Pitt relies upon four grounds of appeal.
Ground 1 challenges the single Judge’s conclusion that Mr Hartwig was under a special disadvantage. There are two limbs to this ground of appeal. Under the first limb of this ground of appeal, Mr Pitt makes a procedural complaint that the single Judge erred in taking into account matters which went beyond the Commissioner’s pleaded case, and the manner in which it was conducted at trial. Under the second limb of this ground of appeal, Mr Pitt makes a substantive complaint that the single Judge erred in taking into account matters which could not, as a matter of law, amount to features of special disadvantage.
Ground 2 challenges the single Judge’s conclusion that Mr Pitt took unconscientious advantage of Mr Hartwig’s position. In particular, Mr Pitt contends that this conclusion was erroneous in circumstances where at the times of the transactions (that is, upon entry into the Option Agreement and the Addendum), Mr Pitt was aware only of Mr Hartwig’s general financial difficulties (in the sense that he was a retiree who was behind on his mortgage, and who could not afford substantial renovations or to buy into a retirement village without selling the Property), and was not aware of the precise extent of Mr Hartwig’s financial difficulties, or his gambling problem.
Ground 3 contends that the single Judge erred in his conclusion that Mr Pitt engaged in unconscionable conduct in that his Honour erroneously took into account that the Property was subdivided and sold “at great profit to himself and his daughter”, whereas the evidence did not support any such finding. The evidence was to the effect that the assignment fee of $125,000 was never paid to Mr Pitt, with the result that the only profit made was by Mr Pitt’s daughter and was not more than about $53,000.
Ground 4 contends that the single Judge further erred in his conclusion that Mr Pitt engaged in unconscionable conduct in that his Honour placed significant weight on the Option Agreement being disadvantageous to Mr Hartwig, but failed to address and give weight to various countervailing considerations (as set out later in these reasons).
The Commissioner filed a notice of alternative contention in which he contends that in the event that the single Judge erred in finding that Mr Hartwig was under a special disadvantage, his Honour’s conclusion that Mr Pitt’s conduct was unconscionable in contravention of s 21 of the ACL was nevertheless correct, and can be sustained upon the basis of an approach to statutory unconscionability that takes into account all of the relevant circumstances. This notice of alternative contention then lists a number of considerations said to support this submission. Again, these considerations are set out and addressed later in these reasons.
Approach to appellate disposition
In conducting an appeal by way of rehearing, it was the duty of the single Judge to undertake a “real review” of the evidence at trial and the trial judge’s reasons for judgment in order to determine whether the trial judge erred in fact or law.[10]
[10] Lee v Lee (2019) 266 CLR 129 at [55] (Bell, Gageler, Nettle and Edelman JJ); Robinson Helicopter Co Inc v McDermott (2016) 90 ALJR 679 at [43] (French CJ, Bell, Keane, Nettle and Gordon JJ); Fox v Percy (2003) 214 CLR 118 at [25] (Gleeson CJ, Gummow and Kirby JJ).
This requires that the appellate court undertake an independent review of the evidence and findings below, and form its own view as to the appropriate outcome.[11] That said, the appeal is not a hearing de novo, and the appellate court should not substitute its own view, or otherwise interfere, unless satisfied that the trial judge fell into error.[12]
[11] Taylor v Hayes (1990) 53 SASR 282 at 291; Warren v Coombes (1979) 142 CLR 531 at 551 (Gibbs ACJ, Jacobs and Murphy JJ).
[12] Wade v Australian Railway Historical Society (2000) 77 SASR 221 at [38]-[40].
Further, in conducting its own review of the evidence and findings below, while not shying away from the task of weighing conflicting evidence and drawing inferences where appropriate,[13] the appellate court should nevertheless have regard to the findings of the trial judge, and any advantage he or she may have had in making those findings.[14]
[13] Lee v Lee (2019) 266 CLR 129 at [56] (Bell, Gageler, Nettle and Edelman JJ); Warren v Coombes (1979) 142 CLR 531 at 551 (Gibbs ACJ, Jacobs and Murphy JJ).
[14] Lee v Lee (2019) 266 CLR 129 at [55] (Bell, Gageler, Nettle and Edelman JJ); Robinson Helicopter Co Inc v McDermott (2016) 90 ALJR 679 at [43] (French CJ, Bell, Keane, Nettle and Gordon JJ); Fox v Percy (2003) 214 CLR 118 at [25] (Gleeson CJ, Gummow and Kirby JJ).
This advantage will be relevant in the case of factual findings which are likely to have been affected by impressions about the credibility or reliability of witnesses formed by the trial judge as a result of having seen and heard them give their evidence, and of having had the opportunity to consider their evidence in the context of the evidence as a whole and of the trial as it unfolded, and hence having had regard to the “feeling” of the case.[15] This advantage may extend to findings of secondary facts which are based on a combination of the trial judge’s impressions and other inferences from primary facts.[16]
[15] Fox v Percy (2003) 214 CLR 118 at [23] (Gleeson CJ, Gummow and Kirby JJ).
[16] Lee v Lee (2019) 266 CLR 129 at [55] (Bell, Gageler, Nettle and Edelman JJ); Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392 at [144] (French CJ, Hayne, Crennan, Kiefel, Bell, Gageler and Keane JJ); Thorne v Kennedy (2017) 263 CLR 85 at [42] (Kiefel CJ, Bell, Gageler, Keane and Edelman JJ).
Thus, when considering a challenge to a finding of fact based upon the trial judge’s impressions about the credibility or reliability of a witness, or a preference for the evidence of one witness over another on a particular topic, it is important to bear in mind the trial judge’s advantage. But, the appellate court may nevertheless intervene, and reach a different conclusion, where the finding is contrary to some incontrovertible fact, some other uncontested testimony or evidence, or is otherwise glaringly improbable or contrary to some compelling inference.[17]
[17] Lee v Lee (2019) 266 CLR 129 at [55] (Bell, Gageler, Nettle and Edelman JJ); Robinson Helicopter Co Inc v McDermott (2016) 90 ALJR 679 at [43] (French CJ, Bell, Keane, Nettle and Gordon JJ); Fox v Percy (2003) 214 CLR 118 at [28]-[29] (Gleeson CJ, Gummow and Kirby JJ).
The conclusion that a person has engaged in unconscionable conduct (whether in equity, or in contravention of a species of statutory unconscionability) involves an evaluative judgment. Although it involves a judgment that is either right or wrong,[18] and in that sense is not subject to the principles of appellate restraint that apply when reviewing the exercise of a discretion, it has been said that an appellate court should nevertheless observe caution in disturbing a trial judge’s finding of unconscionable conduct; the reason being that it represents a judicial conclusion as to “the application to a mass of evidence of a legal standard expressed in broad statutory language”,[19] and a judicial conclusion reached with the benefit of the trial judge’s advantage of seeing and hearing the parties and of “estimating their characters and capacities”.[20]
[18] Australian Securities and Investments Commission v Kobelt (2019) 267 CLR 1 at [47] (Kiefel CJ and Bell J).
[19] Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd (2003) 214 CLR 51 at [82]-[83] (Kirby J); Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392 at [144] (French CJ, Hayne, Crennan, Kiefel, Bell, Gageler and Keane JJ); Jams 2 Pty Ltd v Stubbings [2020] VSCA 200 at [127] (Beach, Kyrou and Hargrave JJA); Jonval Builders Pty Ltd v Commissioner for Fair Trading (2020) 383 ALR 334; at [73] (Leeming JA, Bathurst CJ and Meagher JA agreeing).
[20] Thorne v Kennedy (2017) 263 CLR 85 at [42] (Kiefel CJ, Bell, Gageler, Keane and Edelman JJ). See also Australian Competition and Consumer Commission v Medibank Private Limited (2018) 267 FCR 544 at [236] (Beach J).
We have to this point been describing the appellate task to be undertaken by the single Judge in his independent review of the evidence at trial and reasons of the trial judge. In substance, the same task confronts this Court. Strictly speaking, the task of this Court is to consider whether the single Judge fell into error. But as this involves determining whether the single Judge erred in undertaking the real review that he was required to undertake, it generally calls for a focus upon what transpired at trial. In particular, to the extent that this Court is required to afford deference to findings and conclusions which might have been informed by the advantage of having seen and heard the relevant witnesses, and having had the opportunity to consider the evidence in the context of the evidence as a whole and the trial as it unfolded, that deference is to the advantage enjoyed by the Magistrate as trial judge, and not the single Judge. Thus, while it remains appropriate to consider this appeal through the prism of identification of error in the single Judge’s reasons, the focus must remain on the evidence adduced at trial, and the findings and reasons of the Magistrate in respect of the same.
The principles governing a conclusion of unconscionability
While this appeal concerns the species of statutory unconscionability found in s 21 of the ACL, it is convenient to commence with a summary of the principles governing a conclusion of unconscionability both in equity and under the various statutory species of that concept.
Equitable unconscionability
The central concern of the equitable doctrine of unconscionability is to provide relief against the stronger party to a transaction exploiting, or taking advantage of, some special disadvantage which has operated to impair the ability of the weaker party to form a judgment as to his or her interests.[21]
[21] Australian Securities and Investments Commission v Kobelt (2019) 267 CLR 1 at [81] (Gageler J), citing Blomley v Ryan (1956) 99 CLR 362 at 392 (McTiernan J), 405 (Fullagar J); Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 at 462 (Mason J); Bridgewater v Leahy (1998) 194 CLR 457 at [39]-[40] (Gleeson CJ and Callinan J), [74]-[76] (Gaudron, Gummow and Kirby JJ); Thorne v Kennedy (2017) 263 CLR 85 at [38] (Kiefel CJ, Bell, Gageler, Keane and Edelman JJ).
The principles governing this doctrine were conveniently summarised in the following terms by Nettle and Gordon JJ in Australian Securities and Investments Commission v Kobelt:[22]
[22] Australian Securities and Investments Commission v Kobelt (2019) 267 CLR 1 at [145]-[150] (Nettle and Gordon JJ) (citations omitted).
The equitable doctrine of unconscionable conduct “looks to the conduct of the stronger party in attempting to enforce, or retain the benefit of, a dealing with a person under a special disability in circumstances where it is not consistent with equity or good conscience that he should do so”. The “abiding rationale” of the doctrine is to “ensure that it is fair, just and reasonable for the stronger party to retain the benefit of the impugned transaction”.
Relief under the doctrine of unconscionable conduct requires that the innocent party was subject to a special disadvantage in dealing with the other party when the transaction was entered into, “which seriously affect[ed] the ability of the innocent party to make a judgment as to [their] own best interests”; and that the other party unconscientiously took advantage of that special disadvantage. The existence of those circumstances at the time of the transaction is what “affect[s] the conscience” of the stronger party and renders the enforcement of the transaction, or the taking of the benefit, “unconscientious” or “unconscionable”.
It is not possible to identify exhaustively what amounts to a special disadvantage. However, the essence of the relevant weakness is that it ‘seriously affects’ the innocent party's ability to safeguard their own interests. Relevant matters may include, but are not limited to, “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”; as well as “illness, ignorance, inexperience, impaired faculties, financial need or other circumstances” that affect the innocent or weaker party’s ability to protect their own interests. It is not sufficient that the matters give rise only to an inequality of bargaining power.
A party will have unconscientiously taken advantage of an innocent party when the former knew or ought to have known of the existence and effect of the special disadvantage; or, put another way, when the special disadvantage was sufficiently evident at the time of the transaction to make it unconscientious to procure or accept the assent of the innocent party.
Unconscionable conduct does not require a finding of dishonesty. However, it is not merely concerned with what is ‘fair’ or ‘just’.
Unconscionable conduct can include the passive acceptance of a benefit in unconscionable circumstances. And unconscionable conduct can be found even where the innocent party is a willing participant, the question is how that willingness or intention to participate was produced.
As this Court has recognised and restated a number of times, invocation of equitable doctrines, including unconscionable conduct:
“calls for a precise examination of the particular facts, a scrutiny of the exact relations established between the parties and a consideration of the mental capacities, processes and idiosyncrasies of the [weaker party]. Such cases do not depend upon legal categories susceptible of clear definition and giving rise to definite issues of fact readily formulated which, when found, automatically determine the validity of the disposition. ... [‘]A court of equity takes a more comprehensive view, and looks to every connected circumstance that ought to influence its determination upon the real justice of the case”.
It can thus be seen that equitable unconscionability requires both the existence of a special disadvantage on the part of the weaker party, and conduct by the stronger party in exploiting or unconscientiously taking advantage of that disadvantage. These are sometimes referred to as the two limbs of equitable unconscionability.
Statutory unconscionability
Having concluded that the single Judge erred in finding unconscionability in the narrow sense contemplated by the two limbs of the equitable doctrine, it remains for us to consider whether there was nevertheless a proper basis for concluding that Mr Pitt engaged in statutory unconscionability in the broader sense described in our discussion of the High Court’s reasons in Kobelt. This is, in effect, the issue raised under both Ground 4 of Mr Pitt’s appeal and the Commissioner’s notice of alternative contention.
The single Judge’s conclusion that there was a proper basis for so holding was based upon little more than an adoption of the matters he relied upon in support of his approach to the narrow view. Given the difficulties we have identified in relation to his Honour’s approach to the narrow view, there is little utility in us scrutinising that conclusion any further, or otherwise analysing the issue of the broader view of statutory unconscionability through the prism of the single Judge’s reasons. We consider the appropriate approach is to undertake our own appellate review of the Magistrate’s findings relevant to this issue, and the evidence at trial, so as to reach a view as to the proper resolution of the issue.
In undertaking this review, we propose to adopt the approach indicated by our analysis of the High Court’s reasons in Kobelt. In other words, we propose to address the issue having regard to all of the surrounding circumstances, including those identified in ss 22(2)(a) to (l) of the ACL to the extent they are applicable, while at the same time attempting to group and analyse the relevant considerations by reference to what they reveal or establish as to (i) the vulnerability or disadvantage on the part of Mr Hartwig, and (ii) Mr Pitt having exploited or taken advantage of Mr Hartwig’s position.
Mr Hartwig’s position of vulnerability and disadvantage
We have already set out the reasons for our view that Mr Hartwig, while not under a special disadvantage, was nevertheless subject to a degree of vulnerability and disadvantage by reason of his lack of knowledge and experience relative to Mr Pitt, his financial difficulties, and his dependence upon Mr Pitt to sell the Property so as to enable him to take up the position at the retirement village that he was interested in. These are all matters that contributed to Mr Hartwig being in a weak bargaining position vis-à-vis Mr Pitt (this being a matter the court may have regard to under s 22(2)(a), and in respect of which the Magistrate reached a similar conclusion). He had a weak bargaining position at the time of entry into the Option Agreement, and an even weaker bargaining position when dealing with Mr Pitt in relation to the Addendum.
We have also already set out our reasons for accepting as appropriate and significant the Magistrate’s finding as to Mr Hartwig’s ability to understand the relevant transactions and the documents in which they were embodied (being a matter identified in s 22(2)(c)). Her Honour was not satisfied that the Commissioner established any lack of understanding on the part of Mr Hartwig of the basic elements of the Option Agreement or the Addendum.
The nature and quality of Mr Pitt’s conduct
The balance of the matters listed in s 22(2) of the ACL tend to focus upon the nature and quality of Mr Pitt’s conduct.
In our earlier summary of the Magistrate’s reasons, we have set out her Honour’s consideration of the matters mentioned in s 22(2)(b) (conditions not reasonably necessary for the protection of the legitimate interests of Mr Pitt), s 22(2)(d) (any undue influence, pressure or unfair tactics), s 22(2)(e) (the amount for which, and circumstances in which, the identical services could have been supplied to a person other than Mr Pitt), s 22(2)(j)(i) (willingness of Mr Pitt to negotiate), s 22(2)(j)(ii) and (iii) (the terms and conditions of the contract and compliance with the same), and s 22(2)(l) (good faith). By way of very high level summary, her Honour concluded that:
·despite the four year term of the Option Agreement, she did not consider that there were conditions that went beyond those necessary for the reasonable protection of the legitimate interests of Mr Pitt (s 22(2)(b));
·Mr Pitt did not exert any undue influence or pressure, or otherwise engage in unfair tactics[81] (s 22(2)(d));
·putting the option fees to one side,[82] it was relevant that the Property was worth $260,000, but that this needed to be considered in the context of the advantages or convenience to Mr Hartwig in achieving a sale of the Property that enabled him to move into a retirement village (s 22(2)(e));
·there was no evidence upon which to find that Mr Pitt was not prepared to negotiate (including by agreeing in the context of the Addendum that he would exercise the option; noting that despite the omission of any reference to this in the Addendum, Mr Pitt did in fact exercise the option the same day (s 22(2)(j)(i));
·she was not satisfied that the terms of the Option Agreement or Addendum were unreasonable or exploitative, albeit that Mr Pitt’s failure to comply with the terms as to payment of the option fees (which he sought to justify on the basis that “the deal had changed”) was a relevant consideration (ss 22(2)(j)(ii) and (iii)); and
·there was no suggestion, or basis to find, that Mr Pitt acted otherwise than in good faith (s 22(2)(l)).
[81] cf the single Judge at [46], for reasons not explained.
[82] To be addressed under s 22(2)(j)(iii).
Taking into account all of the above, the Magistrate was not satisfied that Mr Pitt engaged in conduct in his dealings with Mr Hartwig that was so far outside societal norms of acceptable commercial behaviour as to warrant condemnation as conduct that is offensive to conscience. Her Honour thus rejected the allegation of unconscionability.
In contending for a different outcome on this appeal the Commissioner (through his notice of alternative contention) relied upon the cumulative effect of the following considerations:
(i)there was a clear disparity in the bargaining position and sophistication of Mr Pitt and Mr Hartwig (s 22(2)(a));
(ii)Mr Hartwig did not understand the basic elements of the Option Agreement in respect of its length and the terms in respect of option fees (s 22(2)(c));
(iii)the terms of the Option Agreement (especially as to the option period and fees) were not reasonably necessary for the protection of the Mr Pitt’s legitimate interests, offered no material advantage to Mr Hartwig, and amounted to an unfair business tactic and/or were exploitative (ss 22(2)(b) and (d));
(iv)the market value of the Property was $260,000, and the purchase price only $175,000 (s 22(2)(e));
(v)Mr Pitt failed to pay the ongoing option fee under the Option Agreement (s 22(2)(j)(iii));
(vi)Mr Hartwig was significantly disadvantaged by the arrangement for the mutual leases;
(vii)the entry into the Addendum, which reduced the purchase price by $25,000, was of no material advantage to Mr Hartwig, including because it did not require Mr Pitt to exercise the option to purchase the Property as soon as practical or at all; and
(viii)Mr Pitt anticipated that his daughter would make a substantial profit on the proposed redevelopment of the Property.
There is little further that we need say in relation to items (i) and (ii). We have already addressed their significance. We would simply add the related observation that while Mr Pitt had a general understanding of Mr Hartwig’s position, and hence the relative weakness of it, his knowledge of Mr Hartwig’s financial difficulties was fairly general. He knew that Mr Hartwig was a retired pensioner who had fallen behind in his mortgage repayments with the bank having agreed to place him on a hardship plan. And prior to execution of the Addendum, he became aware that Mr Hartwig was relying upon occasional loans from Mr Pitt to meet some of his living expenses. However, Mr Pitt did not know the details of Mr Hartwig’s financial position, or the existence of his gambling problem.
As to items (iii) and (iv), we accept that the terms of the Option Agreement were disadvantageous to Mr Hartwig, and did to some extent go beyond what was reasonably necessary for the protection of Mr Pitt’s legitimate interests. The purchase price for the Property (initially $200,000, prior to its reduction to $175,000 through the Addendum) was materially less than the market value of $260,000. We accept that the poor condition of the Property would likely have made the Property difficult to sell, as Mr Pitt’s unsuccessful efforts in this respect tend to support. And there was a risk that the ANZ bank might take possession of the Property as a result of Mr Hartwig falling further behind in his mortgage repayments, leading to a forced sale. In that sense, Mr Hartwig stood to benefit from having Mr Pitt incentivised to try and achieve a sale for him, and to assist him in staving off the bank. However, we do not think the potential benefit to Mr Hartwig was sufficient to entirely account for the extent of the discrepancy between the price Mr Pitt achieved from Mr Hartwig, and the market value.
Further, in addition to the advantageous price that Mr Pitt achieved from Mr Hartwig, it is significant that he achieved this price through the use of an option to purchase the Property, rather than simply agreeing to purchase it. There is nothing per se wrong with the use of an option agreement to purchase residential real estate. While it is not a common arrangement, it is not unheard of. However, it was obviously an arrangement that was advantageous to Mr Pitt as it gave him the ability to see whether he could identify a third party purchaser before deciding whether to exercise the option. And it was correspondingly disadvantageous to Mr Hartwig in the sense that it made him dependent upon Mr Pitt for the sale of the Property for the duration of the option period.
All of that said, it is the option period of approximately four years that is the most striking, and concerning, aspect of the Option Agreement. Even though we consider it legitimate for Mr Pitt to have pursued an option arrangement that gave him a reasonable period of time within which to seek out a third party buyer, four years does seem an extraordinarily long period of time for Mr Pitt to do so, and for Mr Hartwig to be correspondingly tied to Mr Pitt. That is particularly so having regard to the fact that it could be reasonably expected that the value of the Property would materially increase during this lengthy period, thereby further weighting the benefit of the arrangement in favour of Mr Pitt. Even though Mr Pitt did agree to pay option fees, they were very modest in the scheme of things (and, indeed, able to be deducted from the purchase price in the event the option were to be exercised), and in no way commensurate to the advantage conferred upon Mr Pitt.
In addition to the terms of the Option Agreement, the Commissioner also relies in item (v) upon Mr Pitt’s failure to pay the option fees other than the initial $250. The second fee of $250 was expressly linked in the terms of the Option Agreement to completion by Mr Hartwig of “the Grantor’s works” (that is, the work necessary to prepare the Property for sale). As recounted earlier, Mr Hartwig did not ever undertake this work. As to the further fee of $2,500, this was not paid. And in the case of the ongoing fee (being the repayments to the ANZ bank), it seems from the evidence that Mr Pitt only made a couple of these payments.
While not explored in any detail in the evidence, the general effect of Mr Pitt’s evidence as to the reason why he did not pay these amounts, was that he did not do so because “the deal had changed”; they had both agreed to depart from the strict terms of their documented arrangements, including by Mr Pitt agreeing to lend Mr Hartwig amounts of money from time to time, and to Mr Hartwig deferring payment of rent until settlement on the Property. We also observe that by not paying the $2,500 option fee, Mr Pitt only avoided paying an amount up front that he would then have been entitled to apply in reduction of the purchase price in the event that he exercised the option and purchased the Property (which is, of course, what happened).
As mentioned earlier, Mr Pitt’s counsel took the view at trial that the failure to pay the option fees was not a matter within the Commissioner’s case and so did not seek to explore the issue in any detail in the evidence. Given this, and the considerations mentioned in the preceding paragraph, we do not attach any significant weight to Mr Pitt’s failure to pay the option fees in accordance with the terms of the Option Agreement.
As to item (vi) (the mutual leases), we have addressed this earlier. For the reasons explained, we also do not consider this a matter of any great significance.
We turn then to the Addendum (item (vii)). As recounted earlier, the Commissioner’s case at trial included an allegation that Mr Pitt engaged in misleading conduct in connection with the Addendum, and in particular through the Building Report provided by Mr Pitt to Mr Hartwig. But the Commissioner failed to make out that aspect of his case, and it is no longer contended that Mr Pitt, through the Building Report or otherwise, engaged in any misleading conduct in connection with entry into the Addendum. We thus proceed on the basis that not only was the Building Report obtained from an independent person retained by a third party purchaser, but also that Mr Pitt had a reasonable basis for believing its contents, and in particular its description of the Property as being unfit for human habitation and requiring a significant amount of work, to be true.
In this context, whilst it is true to say that Mr Pitt used the Building Report to extract a $25,000 discount on the purchase price, there is no basis in the findings of the Magistrate, or the evidence, to challenge the genuineness or bona fides of Mr Pitt in seeking this discount. He must already have appreciated that the Property was in a poor state of repair; however, it would seem that this report not only made clear the extent of the work that needed to be done, but also created a potential problem for the sale of the Property in terms of whether it needed to be disclosed to potential purchasers.
It is true that the condition of the Property would not be of great significance to Mr Pitt in the event that he subdivided and redeveloped the Property. However, at the time of the Addendum it was not clear that Mr Pitt would necessarily proceed down that path; and even if he did, whether he would be successful in achieving a subdivision and redevelopment. While it would seem that an application to subdivide was lodged at around the same time as execution of the Addendum, there was no certainty that Mr Pitt would obtain the approvals and finance necessary to undertake the subdivision and redevelopment. In any event, even if Mr Pitt did proceed down this path, it would take time, and the condition of the Property would be relevant to Mr Pitt’s ability to rent out the Property in the interim.
We should add in this context that it was not established that Mr Pitt concealed from Mr Hartwig his consideration of a subdivision and redevelopment. Mr Pitt’s evidence was that he mentioned this possibility from time to time in his regular discussions with Mr Hartwig. He was not able to be precise as to what he said and when on this topic, but he believed he discussed it with Mr Hartwig both before and after execution of the Addendum as part of their ongoing discussions about the Property. While Mr Hartwig accepted that he and Mr Pitt chatted about the possibility of a redevelopment, he could not recall being informed of the application for approval for the subdivision (which was made at about the time of execution of the Addendum). Indeed, he could not even recall executing the Addendum, although he accepted that he must have done so.
The Magistrate did not make any positive finding as to what Mr Pitt told Mr Hartwig, and when, about the subdivision and redevelopment. But in circumstances where her Honour expressed no concerns about Mr Pitt’s evidence on this topic, and bearing in mind Mr Hartwig’s inability to recall anything about what he was told on this topic, there is no basis for this Court to infer any concealment by Mr Pitt.
The Commissioner criticises Mr Pitt’s conduct in relation to the Addendum on the basis that the Addendum was of no material advantage to Mr Hartwig, including because it did not require Mr Pitt to exercise the option to purchase the Property as soon as practical, or at all.
There are two related difficulties with this submission. The first is that there was at least some potential advantage to Mr Hartwig from the Addendum. By the time of the discussions that led to the Addendum, Mr Hartwig was very keen to pursue a position at a particular retirement village. However, he was not able to do so without Mr Pitt exercising the option to buy the Property, and it had become apparent that Mr Pitt was unlikely to do so, at least in the short term, without a reduction in the price. By agreeing, through the Addendum, to reduce the price, Mr Hartwig improved his chances of the Property being sold, and hence him receiving the funds he needed to take up a position at the retirement village in which he was interested.
The second is that on Mr Pitt’s evidence, Mr Hartwig received more than simply an improved chance of the Property being sold; he received an assurance from Mr Pitt that he would exercise the option to purchase the Property. The Commissioner points out that there was nothing in the express terms of the Addendum to confirm, or give contractual force, to any such assurance. However, in circumstances where Mr Pitt did in fact exercise the option almost immediately after entry into the Addendum, the Magistrate was prepared to accept (or at least did not consider that she could reject) Mr Pitt’s evidence as to the assurance he gave.
We acknowledge that, having exercised the option promptly, the sale contract entered into was not only subject to finance but also nominated a settlement date of 1 June 2016 (being the expiry date for the option). However, consistently with Mr Pitt’s evidence to the effect that he had assured Mr Hartwig that he would arrange finance and settle on the contract as soon as he could, Mr Pitt (through his daughter) did arrange finance, and settled on the Property, fairly promptly and within only a few months of execution of the Addendum.
In the circumstances, we do not accept that there was no advantage or benefit to Mr Hartwig in the Addendum. Not only did the evidence suggest that Mr Hartwig initiated the attempts to hasten the sale process, and that he understood he would need to accept a lesser price to enable this to occur, but also we accept he did stand to benefit from this variation to their arrangement in the sense we have described.
The final matter relied upon by the Commissioner was that Mr Pitt anticipated that his daughter would make a substantial profit on the proposed development of the Property (item viii)). Again, this is a matter we have already addressed. We accept that it is a relevant consideration that Mr Pitt was motivated by profit and anticipated that the profit, to be enjoyed by his daughter, might be in the order of some tens of thousands of dollars (albeit after significant work and with the risks associated with any redevelopment or building project). Our observations in this respect should not be taken to suggest that the pursuit of profit is, of itself, inappropriate or illegitimate, because of course it is not. It is simply one relevant matter in the overall circumstances.
Having canvassed all of the matters relied upon by the Commissioner, it remains to identify the countervailing considerations relied upon by Mr Pitt. Most of these have been addressed in the course of our analysis of the matters relied upon by the Commissioner, and need not be repeated in any detail. It is sufficient to list the matters that Mr Pitt sought to emphasise, namely:
(i)the evidence of Mr Tarbotton to the effect that Mr Hartwig appeared to understand the difference between an option agreement and an ordinary sale agreement;
(ii)the finding that Mr Hartwig was offered the opportunity to seek independent advice about the Option Agreement, but declined to do so;
(iii)the state of disrepair of the Property, and consequential likely difficulty in achieving a sale of that Property, which were relevant both to Mr Hartwig’s entry into the Option Agreement and the Addendum;
(iv)in connection with the Addendum, Mr Hartwig’s desire to achieve an early sale of the Property through the exercise of the option so as to enable him to purchase a unit in the retirement village in which he was interested, and Mr Pitt’s assurance that he would exercise the option and endeavour to sell the Property as soon as he could;
(v)the voluntariness (and absence of any undue influence or pressure) associated with Mr Hartwig’s entry into the Option Agreement and Addendum; and
(vi)the absence of any bad faith on the part of Mr Pitt.
Conclusion as to statutory unconscionability
It remains only for us to state our conclusion in relation to whether the Commissioner established that Mr Pitt acted unconscionably in his dealings with Mr Hartwig in connection with the Option Agreement or the Addendum. For the reasons set out above, we consider that Mr Hartwig was in a vulnerable or disadvantageous position in the sense that he was in a weak bargaining position relative to Mr Pitt. He was in a difficult position, with limited alternatives to the arrangements proposed by Mr Pitt. At the same time, we do not think that Mr Hartwig’s ability to understand either of the arrangements proposed by Mr Pitt, or his ability to assess and protect his own interests, was seriously affected or compromised. He was able to, and did, make a free choice to enter into the Option Agreement and Addendum. Further, while the agreements he entered into were advantageous to Mr Pitt, they also provided some potential benefit to Mr Hartwig in terms of assisting him to raise the funds he needed to move into a retirement village.
It is relevant that Mr Pitt had some understanding and knowledge of the Mr Hartwig’s vulnerable position, albeit that he did not have any detailed understanding of Mr Hartwig’s financial position or the fact that he had a gambling problem. But we do not think that it can be said that Mr Pitt acted in an exploitative or predatory manner. We do think that the option period that he secured was excessive in the circumstances, but we do not regard this as a decisive consideration.
In weighing the various competing considerations, and reaching an ultimate conclusion, we have had regard to the advantage the Magistrate had in having seen and heard the various witnesses, and in particular Mr Hartwig and Mr Pitt, give evidence. Her Honour was well placed to make an assessment of not only the credibility and reliability of their evidence, but also their respective characters and capacities. In the ultimate analysis, while we have differed as to some matters of emphasis and detail, we see no reason to interfere with her Honour’s conclusion.
In summary, having regard to the totality of the circumstances, we are not satisfied that Mr Pitt acted unconscionably. We do not think that it has been established that his conduct was so far outside societal norms of acceptable commercial behaviour as to warrant condemnation as conduct that was offensive to conscience.
Orders
For the reasons set out above, we allow the appeal. We set aside the orders made by the single Judge, and restore the Magistrate’s order dismissing the Commissioner’s claim. We will hear the parties in relation to costs.
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