The Australian Competition and Consumer Commission has instituted proceedings in the Federal Court, Perth, against the lessors of a lunch bar and an associated company, Samton Holdings Pty Limited. The legal adviser to the landlords and the company has also been joined in the proceedings.
The ACCC alleges that Samton Holdings dealt with the tenant of the lunch bar in an unconscionable manner in contravention of section 51AA of the Trade Practices Act 1974. Section 51AA of the Act prohibits unconscionable conduct in commercial transactions. The ACCC believes that the term unconscionable conduct, as it applies to section 51AA, covers cases where:
- a party to a transaction suffered from a special disability, or was in some special situation of disadvantage, in dealing with the other party;
- the other party was in a superior bargaining position;
- the weaker party's disability was sufficiently evident that the stronger party knew, or ought to have known, about it; and
- the stronger party took unfair advantage of its superior position of bargaining power.
The statement of claim alleges the small business tenant purchased the business in early 1997 with a three month lease of the business premises with an option for a further seven year term. Under the terms of the lease, the tenant was required to notify the landlords of his intent to exercise the option for the seven year term shortly after the purchase of the business. The tenant failed to formally notify the landlords of his intent to exercise the option until after the required date. The ACCC alleges that the landlords were aware that the tenant wished to continue trading in the long term before the option expired.
The ACCC alleges that, following the failure of the tenant to exercise the option on time, the tenant was required to pay Samton Holdings, a company owned by four of the six landlords, to whom a new seven year lease of the premises had been granted, a sum of $70,000 before Samton Holdings would assign the tenant the new seven year lease.
The ACCC believes that the tenant was at a special disadvantage when dealing with Samton Holdings because of his financial dependence on extended tenure of the business premises and having regard to the level of debt. The ACCC alleges that it was unconscionable for Samton Holdings to take advantage of its superior bargaining position to obtain the payment of $70,000 from the tenant. The ACCC also alleges that each of the landlords and their legal adviser were involved in the conduct.
The ACCC is seeking orders against Samton, each of the landlords and their legal adviser which include: declarations that Samton engaged in unconscionable conduct and that the landlords and their legal adviser were involved in the conduct; injunctions preventing the repetition of similar conduct; the publishing of public notices; the institution of corporate compliance programs to minimise the possibility of similar conduct recurring; damages sustained by the tenant including the repayment of the $70,000; and costs.
While this matter is taken under previously existing provisions of the Act, a new provision, section 51AC, which came into effect from 1 July 1998, provides an improved level of legal protection for small businesses.
The new section mirrors for small business the rights previously enjoyed only by consumers. The new section incorporates a range of additional matters in order to ensure that small businesses are protected in their dealings with larger businesses.