Law And Management

Australian Competition and Consumer Commission v Samton Holdings Pty Ltd [2002] FCAFC 4

FEDERAL COURT OF AUSTRALIA

BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION

APPELLANT

AND: SAMTON HOLDINGS PTY LTD (ACN 062 688 359)

FIRST RESPONDENT

FRANCESCO PARASILITI

SECOND RESPONDENT

GAETANINA PARASILITI

THIRD RESPONDENT

SALVATORE PARASILITI

FOURTH RESPONDENT

MARIA PARASILITI

FIFTH RESPONDENT

FELICE ANTONIO SCIARRETTA

SIXTH RESPONDENT

SILVANA SCIARRETTA

SEVENTH RESPONDENT

JUDGES: GRAY, FRENCH and STONE JJ

DATE: 6 FEBRURY 2002

PLACE: PERTH

STATEMENT OF FACTS

 This contract concerned the sale of a business on leased premises

 The company which assigned the lease and received the payment was Samton Holdings Pty Ltd (Samton), the first respondent

 Samton owns the premises on which a lunch bar business is operated, leasing the land to Patricia and Giuseppe

Farruggio(PGF), who runs the lunch bar business

 PGF subsequently sells the business to Executive Bloodstock (the Ranaldis) for $205,000 (however, 71% of this sale price is specified to be good will) (Para 6)

 The Ranaldis take over the lease with 3 months until its date of expiry, but with the option to extend the lease for seven years

 The option must be exercised by 2 March, 1997, which would allow the Ranaldis to continue operating under the same terms to which PGF is presently entitled (para 10)

 Mr. Ranaldi carelessly fails to exercise the option for renewal by the due date. He exercises the option 16 days after its expiration

 Samton now demands $70,000 for the lease extension

 Thus, in addition to having paid for the business from the lessees, the Ranaldis now have to pay an additional sum of $70,000 to Samton in order to renew the lease.

 The ACCC brings an action asserting unconscionable conduct on the part of the lessors in asking for the $70,000 as a price for renewal of the lease (which would normally have cost nothing had it been requested in time)

ISSUES

1. Did Samton engage in unconscionable conduct in contravention of s 51AA?

2. Did the trial judge err in failing to give consideration to (or giving incorrect weight to) factors that determine whether the conduct was unconscionable?

ANALYSIS OF THE COURT'S DECISIONS

Trial Judge (Carr J): Were the Ranaldis in a position of 'special disability'?

 Mr. Ranaldi was in a position of 'situational disadvantage' and Mr. Salvatore Parasiliti(SP), one of the lessors who managed Samton, was aware of that position

 The conduct of the respondents in extracting the sum of $70,000 was harsh and opportunistic terms but had not 'taken advantage' unconscionably

 The lessors did not take advantage because they were not obliged to renew the lease

 They just struck a hard bargain

ACCC's appeal:

 ACCC argues that unconscionability embraces any conduct which is unconscionable in the dictionary meaning of the word, i.e. an expansion of the common law meaning

 ACCC also argues, in the alternative, that the case was one of unconscionable dealing

Full Court of the Federal Court(Gray, French and Stone J):

 Rejects the argument that s 51AA refers to the dictionary meaning of unconscionability

* The reference is not to be construed at large - s 51AA refers to the unwritten law (specific common law equitable doctrines)

* The relevant unwritten law is not confined to unconscionable dealing, which is only one of several doctrines involving unconscionability

 There are also other doctrines where unconscionability is relevant like unilateral mistake, forfeiture and penalties, etc

* The underlying idea is that a person may not exercise their strict legal rights unconscionably

* This is not a specific equitable doctrine, just an overarching simple principle

 Therefore, s 51 AA is not limited to unconscionable dealing

* But it is limited to specific equitable doctrines

* That is, the court cannot just apply general principles of equity to resolve the dispute.

s 51AA: 'unwritten law from time to time of the States and territories' refers to the common law of Australia

Professor Finn notes distinct ways that unconscionable conduct has been described in law: (Para 46)

 Forming the implicit basis for various equitable rules and doctrines

 Preventing strict enforcement of legal rights (e.g. estoppel, unilateral mistake, and undue influence) where it would be unfair

 Preventing unconscionable