29/07/2009

The Federal Court finds that a retail landlord engaged in unconscionable conduct and orders the landlord to pay compensation to the tenants for overcharging rent…..

 

On 24 June 2009, the Federal Court held in ACCC v Dukemaster Pty Ltd [2009] FCA 682 that a retail landlord had engaged in unconscionable conduct, misleading and deceptive conduct and made false representations to tenants in negotiating new leases for retail premises.  The landlord was ordered to pay more than $275,000 to 4 tenants for the loss and damage they suffered as a result of the landlord’s conduct.

 

The ACCC commenced court proceedings on behalf of the 4 tenants alleging that the landlords conduct was in breach of sections of the Trade Practices Act 1974, including s.51AC being unconscionable conduct in business transactions.

 

Section 51AC states that a corporation must not engage in conduct that is unconscionable.  The factors that a Court may consider include the relative bargaining positions, whether the business consumer was able to understand the documents, whether there was undue influence or pressure, the extent of bargaining and good faith.

 

The landlord was a company which owned a shopping centre in Bourke St Melbourne including a Food Court.  When negotiating new leases for some of the Food Court shops the Court held that the landlord:

 

1. was, or should have been, aware of the lack of bargaining power of the tenant (the tenant had limited English and unable to understand the lease documents);
2. knew, or ought reasonably to have known, that the tenant did not understand they were not exercising an option on a previous lease but entering a new lease;
3. denied the tenant adequate time to consider the rental terms;
4. gave the tenant only limited time to make their own enquiries about the market rent; and
5. required a rent significantly higher than the market rent.

 

The Court agreed with the ACCC’s case and ordered the landlord to pay the tenants in excess of $275,000 for overcharging rent and interest on the overcharging.  The Court held that the landlord’s conduct was “irreconcilable with what was right or reasonable”.

 

The Court specifically said that s.51AC has had limited judicial consideration but that the following propositions had been established:

 

a)     The meaning of the word “unconscionable” is not limited by established principles of common law or equity;

b)    The conduct involves no regard for conscience, and can be conduct irreconcilable with what is right or reasonable;

c)     Normally there will be some element of moral fault or moral responsibility.

 

The Court went on to state that there is no precise definition that could be applied to circumstances but that it will always be a matter of judgment with careful consideration of the circumstances.

 

The difficulty will always be in what is sharp practice in obtaining a favourable commercial outcome against taking advantage of a party through unconscionable conduct. 

If you have any questions in regard to possible unconscionable conduct, please contact TOWNSENDS BUSINESS & CORPORATE LAWYERS on (02) 8296 6222.