For the second time within a week the Federal Court has made it clear that it will not tolerate unconscionable conduct in commercial dealings, in particular, exploitation of tenants by landlords in stronger bargaining positions.
Justice French of the Federal Court, Perth, found the conduct by the landlord of Farrington Fayre shopping Centre, namely CG Berbatis Holdings Pty Ltd, GPA Pty Ltd and P&G Investments Pty Ltd ("the Owners") towards a small business tenant, Mr and Mrs Roberts, "...was grossly unfair exploitation of the particular vulnerability of the Roberts in relation to the sale of their business".
The Australian Competition and Consumer Commission alleged that the Owners implemented a strategy in 1996 and early 1997 where they refused to grant renewals, variations or extensions of leases to three tenants of Farrington Fayre unless those tenants withdrew from legal proceedings before the WA Commercial Tenancy Tribunal.
The three tenants concerned, Mr and Mrs Roberts, Banlon Pty Ltd and Mr and Mrs Ternent, together with other tenants of Farrington Fayre had taken the Owners to the Tribunal for alleged overcharging of rates, taxes and other matters.
"By insisting that Mr and Mrs Roberts abandon their rights to proceed with bona fide litigation under an existing lease, as a condition of securing a new lease and assignment of it, the Court found that the Owners had engaged in unconscionable conduct in contravention of s.51AA of the Trade Practices Act 1974", Acting ACCC Chairman, Mr Allan Asher, said today.
"Justice French further declared that the directors of the companies, Mr George Atzemis, Mr Con Berbatis and Ms Anna Maria Heijne, and their representative Brian Sullivan Property Pty Ltd and its director Mr Brian Sullivan were directly or indirectly knowingly concerned in the conduct.
"The ACCC formed the view that these tenants were at a special disadvantage when bargaining with the Owners because of their financial dependence on the lease negotiations, and this view has now been confirmed by the Court's decision ".
In relation to the dealings between the Owners and Mr Sullivan, and Mr and Mrs Roberts Justice French said that "...the Roberts, in particular, had little bargaining power when it came to dealing with the owners. There was a marked inequality of bargaining power between them."
The Court held that circumstances in which a business operator on a lease may effectively lose the value of that business upon expiry of the lease does place the tenant at a special disadvantage in dealing with the owner. And unfair exploitation of such a disadvantage may occur when an owner uses its bargaining power to extract a concession from the tenant that is commercially irrelevant to the terms and conditions of any proposed new lease.
"This decision together with the Federal Court's decision last Friday in Melbourne regarding the Simply No-Knead franchisor further clarifies the interaction between the three provisions in Part IVA of the Act all dealing with unconscionable conduct.
"The Courts are fleshing out the meaning of unconscionable conduct in the Act which will allow the ACCC to better protect the interests of small businesses in their dealings with big businesses or businesses with market power", Mr Asher said.
In relation to the remaining two tenants, Justice French determined that the Owners and Mr Sullivan did not engage in unconscionable conduct within the meaning of section 51AA. His Honour did state, however, that "[t]his case turns on the limited scope of s 51AA. It may be that a different result could have been obtained under the later wider provisions of s 51AC".