Australian Competition and Consumer Commission v Samton Holdings Pty Ltd

Factual History 2 Between June 1992 and February 1997 Patricia and Giuseppe Farruggio were the lessees of a Portion of Lot 198 Bannister Road, Canning Vale. There they operated a lunch bar business through their company, New York Fries Pty Ltd. The business was operated from a building constructed on the site. A Mobil service station adjoining the lunch bar also operated on Lot 198. The Farruggios had taken an assignment of a pre-existing lease between the then owners Brian and Alexander Featch and a company called Banquet Holdings Pty Ltd. In January 1993, the Featchs sold the land subject to the lease to members of the Parasiliti and Sciarretta families. They were Francesco, Gaetanina, Salvatore and Maria Parasiliti and Felice and Silvana Sciarretta and are the second to seventh respondents to this appeal. 3 The term of the lease was for a period of 64 months commencing on 3 February 1992 and expiring on 2 June 1997. The lease contained an option for renewal. The option, as set out in cl 22.1 of the lease agreement, was as follows: "22.1 If the Lessee wishes to take a lease of the Property for the Option Term and gives to the Lessor notice to that effect at least three (3) months prior to the expiration of the Term but not earlier than six (6) months prior to the expiration of the Term and at the time of giving the notice and at the expiration of the Term: (1) there shall be no outstanding breach of the Lessee's Covenants; (2) the Lessor's right of re-entry shall not have arisen; (3) during the Term there shall not have been any breach of the Lessee's Covenants which was not rectified within fourteen (14) days of notice of that breach being given by the Lessor; THEN the Lessor shall at the cost of the Lessee grant to the Lessee a lease of the Property for the Option Term at a rent determined in accordance with clause 23 but otherwise upon the same terms and conditions other than the right of renewal." 4 The "Option Term" was defined in the schedule to the lease thus: "OPTION TERM A term of Seven (7) years commencing the day immediately following the date of expiration of the Term." 5 In 1995 the Farruggios applied to the Commercial Tenancy Tribunal in respect of a dispute with the lessors. The dispute was eventually settled in October 1996. The resolution of the dispute involved the preparation of documentation which was not executed until some months later. It included a variation of the lease which is not material to this appeal. 6 On 28 November 1996, the Farruggios' company, New York Fries Pty Ltd, executed an agreement to sell the business of the lunch bar to a company called Executive Bloodstock controlled by Frank and Marie Ranaldi. The purchase price of the business was $205,000 allocated as follows: · Goodwill $145,000 · Plant and Equipment $50,000 · Stock-in-trade $10,000 It was a term of the agreement that the purchase was conditional upon the lessors consenting to the assignment of the lease to the purchaser. The date of settlement specified was 31 December 1996. The purchase of the business was, as the primary judge found, a heavily-geared transaction. The Ranaldis borrowed $270,000 from the Home Building Society of which $102,267.58 was applied to discharge a previous mortgage over their home in favour of the Town and Country Bank Ltd. The balance of $155,000 was applied to the purchase price of the business. The loan from the Home Building Society was secured by a mortgage over their home. It represented more than seventy-five per cent of the value of the house and land. A further sum of $45,000 was borrowed by Executive Bloodstock from Elderslie Finance Corporation Ltd for a term of five years. That loan was secured by a registered second mortgage over the Ranaldis' home, a charge over the assets of the business and a chattel mortgage over Mr Ranaldi's motor vehicle. The primary judge found that Mr and Mrs Ranaldi and their company had mortgaged themselves "to the hilt" to purchase the business. The business was to be their sole source of income. His Honour found that they were dependent upon the income of the business or its sale for their financial security and their livelihood to a very substantial extent, but not totally. 7 The lessors were asked to consent to an assignment of the lease to Executive Bloodstock. The pre-settlement processes went well beyond 31 December. In January the lessors' solicitors, Jackson McDonald, requested information about Executive Bloodstock including its financial statements for the previous three years. The information was provided by ABPS Real Estate and Business Brokers on 29 January together with a statement of the company's current financial position. Accounts for the year ended 30 June 1995 were sent on 31 January. Settlement was proposed for 7 February 1997 but was delayed because of the need to prepare an amendment to the lease pursuant to the resolution of the Commercial Tenancy Tribunal proceedings. 8 In a letter to ABPS of 13 February 1997, Jackson McDonald expressed their clients' concern that Executive Bloodstock and the Ranaldis might not be sufficiently financially sound to operate the business in the long term. They asked whether there was any further information which could be provided in order to allay the lessors' fears. The lessors would continue to withhold their consent to the proposed assignment pending receipt of the further information. In the course of the letter it was stated: "Our clients understand that the purchaser has agreed to pay $195,000 plus the value of stock as the consideration for the purchase of the business. From the statement of affairs provided, it appears that almost the whole of this will have to be borrowed." In a reply dated 18 February 1997, Mr Dalziell of ABPS attached a statement from the Town and Country Bank and asserted that the purchasers had demonstrated that they were in a sound financial position. Mr Ranaldi was described as a person with "proven business skills". Jackson McDonald wrote to the Ranaldis' solicitors, Preuss Feinauer & Associates, on 18 February 1997 advising that in light of further information provided by Preuss Feinauer and Mr Dalziell their clients approved the assignee. 9 On 20 February 1997, multiple copies of each of a Deed of Variation of Lease and Deed of Assignment of Lease were sent to ABPS who were informed that five of the lessors would be able to execute them the following morning and the remaining one would be able to do so when she recovered from surgery which she had just undergone. The Deed of Assignment itself contained a schedule which stated the date of assignment to be 17 February 1997. The term of the assigned lease was defined as 64 months commencing on 3 February 1992 and expiring on 2 June 1997. The rent specified in the schedule to the assignment was $2,000 per month. The assignment was expressed thus: "In consideration of the Assignee's Covenants, the Assignor as beneficial owner does now ASSIGN to the Assignee from and including the Date of Assignment for the unexpired balance of the Term the full benefit and advantage of the Lease (including any option of renewal contained in the Lease) subject to the payment of the Rent and the due compliance with and observance of the Assignor's Covenants by the Assignee from and including the Date of Assignment." 10 Under the terms of the lease written notice was required to be given of the exercise of the option for renewal by the lessee by 2 March 1997. The trial judge found that it must have been abundantly clear to the lessors that Executive Bloodstock would, in all probability, want to exercise the option. They knew the purchase price which Executive Bloodstock had paid for the business, indeed that was reflected in the letter from Jackson McDonald to the business brokers of 13 February 1997. 11 His Honour observed: "It would make no commercial sense to outlay an amount of $205,000 on the basis that there would be only about three months security of tenure. The Business had a turnover of about $500,000 per annum and a net profitability of about 20% on turnover. That would mean a net profit of only about $25,000 in those three months. The evidence does not establish that the respondents were aware of the precise figures, but they knew the purchase price paid by Executive Bloodstock." The settlement of the purchase of the business took place on 26 February 1997. There were at that time only three days remaining within which to exercise the option. The trial judge found that it must have been known to the lessors that Mr Ranaldi would, as was the case, be very busy taking over the reins of the business, thus increasing the likelihood that he would overlook preparation and service of a notice exercising the option. The time for the option expired without it being exercised. Mr Salvatore Parasiliti, one of the lessors who managed their real estate interests, was described by his Honour as a "shrewd and intelligent businessman". His Honour found that it would have been more likely than not that Mr Parasiliti would have allowed as much time as possible to expire after 2 March 1997 rather than bring the issue to a head earlier. What brought matters to a head was Mr Ranaldi's purported exercise of the option on or about 18 March 1997. It is common ground that this was not a valid exercise as it was out of time. 12 The lessors took advice from their solicitor, Mr Gentilli of Jackson McDonald, that the exercise of the option was invalid and a meeting was held on 21 March 1997 at the Mobil Service Station adjacent to the lunch bar. In essence, the lessors told Mr Ranaldi that they were not going to treat the option as having been validly exercised. They informed him that they were going to take over the premises and run the business themselves. 13 Mr Ranaldi immediately sought advice from his solicitor, Mr Cockram. Mr Cockram sent a fax to Mr Gentilli on the same day asserting that Executive Bloodstock did not concede that the lessors had the right to refuse to grant the new lease and that it would take every possible action including reliance upon an estoppel. That day was a Friday. On the following Monday, 24 March 1997, Mr Gentilli sent a fax to the lessors which included the following passages: "It is now necessary for you to decide precisely what you wish to achieve by the present situation. I do not think the new tenant has much hope of succeeding in the dispute but in view of the amount that he has paid for the business and the fact that he has been advised that his only avenue is to try to make out a case that you cannot rely on his failure to exercise the option, the dispute may be expensive for both parties. This of course cuts both ways in that the tenant may be prepared to pay a reasonable amount rather than start litigation which he is likely to lose." Shortly afterwards, probably on 24 March 1997, there was a conversation between Mr Ranaldi and Mr Francesco Parasiliti. Mr Parasiliti told Mr Ranaldi to instruct his solicitor to "…back off or you could very well lose your property, house or everything. Don't mess with us…or you will be out on your arse on this one". The learned trial judge found that Mr Parasiliti was aggressive and his attitude intimidatory. 14 Following the advice of 24 March 1997 from Mr Gentilli, the lessors decided to seek a money sum from Executive Bloodstock rather than retaking possession of the premises at the expiry of the then current term and incurring the risk of expensive litigation. Sometime between 28 and 31 March 1997, a further meeting took place between Mr Ranaldi and the lessors. The lessors demanded payment of $70,000 as the price for extending the lease for a seven year term. Mr Ranaldi left the meeting with a view to seeing what he could do to raise the money. He decided that he had to meet the lessors' demand and told his solicitor, Mr Cockram, what he was going to do. A third meeting took place on or about 4 April 1997. There Mr Ranaldi told the lessors that he could pay $50,000 by a lump sum and the balance of $20,000 by instalments. The lessors accepted these terms of payment. 15 In the course of a telephone conversation on 4 April 1997 Mr Gentilli told Mr Salvatore Parasiliti that the agreement for payment of the lump sum could constitute an agreement for the payment of key money voidable by virtue of the provisions of the Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA). Mr Parasiliti asked Mr Gentilli to see if there was a way in which the transaction could be effected lawfully. In a letter of 11 April 1997 Mr Gentilli proposed a scheme which involved the lessors granting a seven year lease to a company which they controlled on the basis that the company would then assign the lease to Executive Bloodstock for an immediate payment of $50,000 and a further $20,000 spread over ten months. This was the transaction that was carried out. The company which assigned the lease and received the payment was Samton Holdings Pty Ltd, the first respondent. Mr Gentilli's advice was based upon a decision of the Full Court of the Supreme Court of Western Australia in Thessaly Pty Ltd v Pelworth Pty Ltd (1991) 6 WAR 253. In order to make the payment Executive Bloodstock borrowed $50,000 from the ANZ Bank, secured by a mortgage over a residential unit owned by Mr Ranaldi's parents, Bonito and Maria Pia Ranaldi. 16 Executive Bloodstock operated the business until 8 June 1998 when it was sold for $180,000 plus $3,500 for stock (AB220). It made a trading profit of $45,375 in the period 26 February 1997 to 30 June 1997 but an operating loss after expenses of $15,242. A profit in excess of $100,000 was made in the period from 1 July 1997 to 8 June 1998. It was Mr Ranaldi's evidence that during the final year of operation of the business mortgage and other repayments were approximately $8,000 per month comprising:

1. Approximately $2,600 to the Home Building Society 2. $1,000 to the ANZ Bank from 1 July 1996 following refinancing of the Elderslie Finance loan. 3. $2,300 to the ANZ Bank by way of repayment of the $50,000 loan to acquire Samton's leasehold interest, 4. An extra $2,000 per month to Samton. The Procedural History 17 On 26 February 1999, the ACCC filed an application in this Court seeking a declaration that Samton Holdings had, contrary to s 51AA of the Trade Practices Act 1974 (Cth), in trade or commerce, engaged in conduct that was unconscionable within the meaning of the unwritten law from time to time of the States and Territories. A declaration was also sought that the Parasalitis and the Sciarrettas were directly or indirectly knowingly concerned in or party to the conduct of their company and that their solicitor, Mr Gentilli, was also accessorially involved. Various injunctions were sought against all the named respondents and an order pursuant to s 87(1A) for payment of compensation by the respondents to Executive Bloodstock in the amount of the loss or damage suffered by the company and/or the Ranaldis. Other orders relating to public notices, findings of fact and trade practices compliance programs were also sought. 18 In the statement of claim it was alleged, inter alia, that Executive Bloodstock as tenant and/or the Ranaldis as its sole shareholders were in a situation of special disadvantage compared with Samton Holdings in that: (a) Executive Bloodstock had only recently completed the purchase of the business which had been financed almost completely through the obtaining of business loans which loans were secured against the assets of Executive Bloodstock and the assets (including the residential property) of the Ranaldis. (b) The Ranaldis' overall financial security, livelihood and ability to repay the business loans and other debts depended on income derived from the conduct of the business or alternatively from the sale of the business. (c) The lease of the premises on which the business was conducted was due to expire on 2 June 1997. (d) It was difficult or impossible to sell the business at a fair market price or at all without an extended or new lease of the premises for a substantial term. (e) The business was the sole, alternatively, the principal source of income for Executive Bloodstock and accordingly was also the sole or principal source of income for the Ranaldis. (f) The value of the business was significantly reduced without a lease of the premises. (g) It was not practical to relocate the business to different premises and/or alternatively, the costs of relocating the business at different premises was substantial. It was said of the respondents that they knew or ought to have known of the special disadvantage. The imposition of the condition of a payment of $70,000 as originally proposed at the meeting of 31 March and, alternatively, the varied requirement for $50,000 with $20,000 over ten months as a condition of obtaining a new lease was said to be unconscionable. It was said to be unconscionable because it was conduct which: (a) Took advantage of one or more of the factors constituting the Ranaldis' special disadvantage. (b) Was imposed in circumstances where Executive Bloodstock and the Ranaldis were exercising their legitimate rights to obtain and/or negotiate the extension of the lease of the premises and was an illegitimate means of persuading Executive Bloodstock and the Ranaldis to enter into a further lease arrangement for the premises under which they were required to pay an additional amount of $70,000. (c) Was imposed in circumstances where Executive Bloodstock and the Ranaldis were in a position where the choices available to them and their lack of relative bargaining power meant that the imposition of the First Condition and/or the Second Condition was to leave Executive Bloodstock and the Ranaldis with no choice other than to comply with them. A further factor relied upon in the statement of claim depended upon an allegation of an oral notice of intention to exercise the option which had been given by Mr Ranaldi. However, his Honour was not persuaded that the oral notice of intention had in fact been given. 19 The hearing of the action occupied three days although after the first day of the hearing proceedings against Mr Gentilli were discontinued. A cross-claim against him by Samton Holdings and the Parasilitis and Sciarrettas was maintained but stayed depending upon the determination of the principal application. Claims were also brought against Mr Ranaldi and Executive Bloodstock seeking indemnity in respect of any liability on account of any benefits received by Ranaldi and Executive Bloodstock by their conduct of the business and its sale over and above the fair market value of the plant used in the business as at 2 June 1997 and an indemnity in respect of the costs of the respondents in defending the ACCC's claim. 20 His Honour gave judgment dismissing the application. The ACCC now appeals against that decision.

The Reasons for Judgment of the Primary Judge 21 The history already set out outlines the principal factual findings made by the learned primary judge. After reviewing the evidence and setting out his major findings of fact his Honour turned to the provisions of s 51AA of the Trade Practices Act which he accepted as directed to "conduct that is unconscionable within the equitable concept of unconscionable conduct". His Honour was satisfied of the constitutional validity of the provision. He noted the abandonment of a contention that Samton Holdings was not a trading corporation. 22 His Honour characterised the ACCC's case thus: "…that Executive Bloodstock and Mr and Mrs Ranaldi were in a situation of special disadvantage compared with [Samton Holdings] and that the latter had exploited that special disadvantage by conduct which, according to equitable principles, was unconscionable." He observed that, at trial, the case was fought on the basis that the conduct of Salvatore and Francesco Parasiliti, probably on behalf of all the individual respondents, was also to be treated as being for and on behalf of Samton Holdings. The parties were content for the case to be fought on the basis that Samton Holdings had adopted, as its conduct, the prior conduct of the individual respondents in relation to the demand for payment. 23 In considering whether Executive Bloodstock and/or the Ranaldis were in a situation of special disadvantage compared with Samton Holdings his Honour referred to five factors relied upon by the ACCC to establish that that situation existed. They were: (a) Executive Bloodstock had very recently completed the purchase of the business which had been financed almost completely through the obtaining of business loans secured against its assets and those of Mr and Mrs Ranaldi. (b) Mr and Mrs Ranaldi's overall financial security, their ability to pay the abovementioned loans and their livelihood depended on income derived from the conduct of the business or alternatively from the sale of the business. (c) The lease was due to expire on 2 June 1997. (d) It was difficult or impossible to sell the business at a fair market price or at all without an extended or new lease of the premises for a substantial term. (e) It was not practical to relocate the business to different premises and the costs of relocating the business at different premises would, in any event, have been substantial. His Honour found each of these matters established as a matter of fact, save that, while the Ranaldis were dependent upon either the income of the business or its sale for their financial security and their livelihood to a very substantial extent, they were not totally so dependent. If Executive Bloodstock had lost the business and the Ranaldis had to sell up to repay the loans they would still have had assets in excess of $100,000. Moreover, after Executive Bloodstock sold the business in June 1998 Mr Ranaldi resumed his occupation of trading in horses. 24 His Honour found Mr Ranaldi to be a man of commercial experience who would have known it was in the best interests of himself and his wife to preserve the value of the business by making the payment of $70,000. Nevertheless his Honour held: "…the fact that they had no real choice but to meet the demanded payment or suffer a far greater loss, put Mr and Mrs Ranaldi and Executive Bloodstock in a position of special disadvantage. If they did not pay the $70,000 they stood to lose their home and at least $145,000. In practical terms, they were not in a position to make any judgment other than to pay up. Subject to not demanding either more than the Ranaldi interests could afford to pay (by raising more loans or agreeing to instalment payments) or demanding more than the value of the goodwill, the respondents, to put it colloquially, had Executive Bloodstock and Mr and Mrs Ranaldi to a significant extent 'over a barrel'."

On this basis his Honour held the ACCC to have proven that Executive Bloodstock and the Ranaldis were in a situation of special disadvantage, albeit there were ameliorative aspects of their situation of a kind not usually encountered in cases where a special disadvantage is found to exist. 25 His Honour then went on to consider the state of the respondents' knowledge. He accepted the ACCC's plea that the respondents knew of the Ranaldis' special disadvantage and that of Executive Bloodstock. That knowledge arose from the respondents' close examination of the financial positions of the company and of Mr and Mrs Ranaldi when they considered the application for approval to the assignment of the lease to Executive Bloodstock. This was borne out by the content of Mr Gentilli's letter of 13 February 1997 to Mr Dalziell in which he referred to his clients' awareness of the position of Executive Bloodstock and their concern that the company and the Ranaldis might not be sufficiently financially sound to operate the business in the long term. His Honour found the respondents had a sufficiently detailed knowledge of the financial affairs of the company and the Ranaldis to be fixed with notice that if the company did not obtain an extension of the term of the lease it would lose about $145,000 which was the value of the goodwill of the business and that Mr and Mrs Ranaldi would probably have to sell their home. 26 The next question to be considered was whether, by extracting the $70,000 from Executive Bloodstock as a condition of providing it with a seven year leasehold term, Samton Holdings engaged in conduct which was unconscionable. 27 His Honour discussed the law dealing with the equitable principles of unconscionable conduct. He adverted to the characterisation of unconscionability as a species of equitable fraud reflected in the reasons for judgment of McTiernan J in Blomley v Ryan (1956) 99 CLR 362 and Mahoney JA in Antonovic v Volker (1986) 7 NSWLR 151. His Honour said: "I mention equitable fraud because I think that it is helpful, when assessing particular conduct in particular circumstances, to keep in mind that if there is a scale by which to measure unreasonable behaviour by one person towards another, unconscionability is towards the extreme end of that scale." He referred to other case law - The Commonwealth v Verwayen (1990) 170 CLR 394, Harry v Kreutziger (1978) 95 DLR (3d) 231 at 240 and Burt v Australia and New Zealand Banking Group Ltd (1994) ATPR (Digest) 46-123. In relation to the latter he quoted the observation of Bryson J at 53.598 that: "The courts enforce legal rights except in circumstances which are so far out of the ordinary course, so much an enormity and a departure from ordinary standards of conduct that the position of a person who relies on legal rights should rightly be adjudged unconscionable." His Honour thought that Bryson J may have set the bar a little too high but said that the observation confirmed "…that unconscionability is towards the extreme end of the scale to which I have referred above". It is this statement that is the subject of specific criticism by the ACCC in this appeal. 28 His Honour went on to observe that the question as to whether particular conduct was unconscionable is not to be answered without, at the same time, taking into account matters which might strictly be regarded as relevant to the issue of special disadvantage. When considering the application of the equitable principle of unconscionability, the question is whether equity will restrain or otherwise grant relief against the particular conduct. That must involve looking at all of the circumstances and whether they fall into one category or another. It is conduct in context which has to be judged and the context includes matters which bear on the question of the degree of special disability. 29 Mr Ranaldi was adjudged as reasonably well-versed in commercial matters having regard to his long experience in business. During the relevant period he had legal advice from Mr Cockram, a matter known to the respondents. These factors were relevant not only in assessing the degree of special disability but also the question whether the respondents' conduct was in all the circumstances unconscionable. The male respondents on the other hand had very little formal education but were successful businessmen and well understood, having obtained legal advice, that they were in a strong position. They had, of course, been advised that if they insisted upon taking vacant possession of the premises they might be exposed to expensive litigation. 30 His Honour regarded it as a relevant factor that initially the respondents made an agreement with Executive Bloodstock which was illegal under the Commercial Tenancy (Retail Shops) Agreements Act. The circumstance that the scheme, as ultimately adopted, was probably not in contravention of the State Act did not preclude the Court from having regard to its character as a device to achieve legally what they had previously bargained to obtain illegally. He took this factor into account as a matter weighing against the respondents but, in his opinion, it did not sufficiently tip the scales on the question of unconscionability. 31 The context in which the parties had reached their agreement was one in which each side had legal advice and each side knew that both the individual respondents and the first respondent were in a far stronger position legally than Executive Bloodstock. However they were minded to reach a negotiated settlement of their dispute. His Honour also counted it as relevant that Mr Ranaldi failed to attend to the exercise of the option and that it was his own neglect which brought about the situation in which he found himself. He had been told by Mr Dalziell before settlement about the need to exercise the option. Mrs Farruggio, had at about the same time, advised him to make sure he advised the lessors of his intention to exercise the option. 32 His Honour was inclined to give weight to the submission that it may well have been open to the respondents simply to resume possession at the end of the then current term. Indeed the ACCC had acknowledged that a refusal to permit an option to be exercised out of time would not in itself be the subject of complaint at law or in equity in the absence of the other conduct. This was a position that the ACCC also took on the hearing of the appeal. 33 In the event, the agreement made by Executive Bloodstock and the Ranaldis enabled the company to generate a profit of in excess of $100,000 during the period of nearly twelve months ended in June 1998. It also enabled the company to sell the business at the end of that period for $180,000. Both sides to the compromise would have been aware of these likely financial advantages when they made the settlement arrangements. His Honour considered that Mr Ranaldi was to be taken to have calculated that it was in his business interest to pay the $70,000 to regain the financial position which Executive Bloodstock had lost by his omission. He had made what could have been a $145,000 mistake and he and his wife could have lost their home. His Honour said: "He struck a commercial settlement." The individual respondents also chose to forego what was, in all probability, their right to retake possession at the expiration of the term of the lease and in doing so avoid the risk of further expensive litigation. Had they persisted in their course and been successful in the litigation they would have been about $145,000 richer. Instead they settled the dispute for slightly under half that sum. His Honour said: "The result was that Mr Ranaldi had made a $70,000 mistake instead of a $145,000 mistake." His Honour did not approve of the respondents' conduct. He observed that it might well be thought that they had adopted "an avaricious, opportunistic approach and struck a very hard bargain". In his opinion, however, their conduct fell short, though not far short, of being the sort of conduct which equity would regard as unconscionable.

The Grounds of Appeal 34 It is convenient to set out the five grounds of appeal which were as follows: 1. In failing to find that the conduct of the respondents was unconscionable but rather concluding that the conduct of the respondents "fell short but not far short of being unconscionable" the learned trial judge erred in fact and at law in (a) concluding that unconscionable conduct must always be at the extreme end of the scale of unreasonable conduct and (b) failing to take into account or give sufficient weight to (i) the fact that to be conduct eligible for consideration under s 51AA of the Trade Practices Act (1974) the conduct must, by definition, be in trade and commerce and (ii) the legislative purpose was therefore to proscribe unconscionable conduct when carried out against, amongst others, people who may have some business skills and background such as tenants of leased commercial properties and (iii) that strict adherence to legal rights in the circumstances of the facts as found by the learned trial judge may and did amount to unconscionable conduct. 2. Alternatively in concluding that the conduct of the respondents "fell short but not far short of being unconscionable", the learned trial judge erred in fact and at law in not concluding that the conduct of the respondents was unconscionable as so defined or otherwise in having correctly found that (a) Mr Ranaldi did suffer a special disadvantage by virtue of his financial exposure and potential loss. (b) that the respondents were aware of that special disadvantage and that (c) the conduct of the respondents in extracting the sum of $70,000 was "avaricious", "opportunistic", and a "very hard bargain". 3. In concluding that the conduct of the respondents fell short but not far short of being unconscionable the learned trial judge erred in fact and at law in failing to take into account: (a) the fact that all 3 respondents had colluded to concoct their evidence about their conduct and thereby recognised the seriousness of their own conduct and that (b) one or more of the respondents gave false information to their legal adviser at the time of the conduct for the same reason. 4. In concluding that the conduct of the respondents fell short but not far short of being unconscionable the learned trial judge erred in fact and at law in giving insufficient weight to: (a) the fact that the transaction would have been illegal and void but for the conveyancing device created to artificially overcome the illegality and (b) to the amount of money demanded and paid in order to remain in possession when compared with Mr Ranaldi's financial circumstances. 5. In concluding that the conduct of the respondents fell short but not far short of being unconscionable the learned trial judge erred in fact and at law in taking into account irrelevant matters namely: (a) the fact that it was ultimately a negotiated settlement given that His Honour also found correctly that Mr Ranaldi had no choice in the matter (b) the fact that Mr Ranaldi would have been much worse off (c) the fact that it was Mr Ranaldi's fault that the renewal of the lease was late (d) the fact that Mr Ranaldi had been a businessman of at least some experience and (e) the fact that each side was legally represented as the only advice Mr Ranaldi's solicitor could give was that Mr Ranaldi was in a hopeless position.

Statutory Framework 35 Section 51AA of the Trade Practices Act provides: "(1) A corporation must not, in trade or commerce, engage in conduct that is unconscionable within the meaning of the unwritten law, from time to time, of the States and Territories. (2) This section does not apply to conduct that is prohibited by section 51AB or 51AC." It is also helpful to refer to the provisions of the Commercial Tenancy (Retail Shops) Agreements Act relating to key-money and, in particular, s 9 which relevantly provides: "9. Key-money and goodwill (1) Subject to subsection (2), a provision in a retail shop lease to the effect that the landlord or a person claiming through him is entitled to, or may require from the tenant - (a) key-money; or (b) any consideration in respect of the goodwill of the business, is void. . . . (3) Any amount paid or the value of any benefit conferred by a person under a provision of a lease that is void by reason of subsection (1) or (1a) may be recovered by that person from the person to whom the amount was paid or on whom the benefit was conferred in the Tribunal or a court of competent jurisdiction as a debt due." 36 The term "key money" is defined in s 3(1) of the Act thus: ""key-money" means - (a) money that is to be paid by, or at the request or direction of, a tenant; or (b) any benefit that is to be conferred by, or at the request or direction of, a tenant, by way of a premium or something of a like nature in consideration of the granting of, or agreeing to grant, a lease or the renewal of a lease or the consenting to an assignment of a lease or the sub-leasing of the premises the subject of a lease;" 37 Section 9 also has to be read with s 3(2) of the Act which provides: "Where the parties to a retail shop lease enter into, either before or after entering into the retail shop lease, a written or oral agreement or arrangement that contains a provision which if contained in the retail shop lease would be void, that provision is for the purposes of this Act deemed to be contained in the retail shop lease and this Act applies to and in relation to that provision as if it were so contained." 38 It is worthy of note that the Property Law Act 1969 (WA) in Division 2 of Part VII makes provision for the Supreme Court to make orders relieving against the effects of breaches of obligations under a lease which might otherwise preclude a lessee from exercising an option to renew the lease. The relevant sections, ss 83A to 83E inclusive, were inserted by the Property Law Act Amendment Act 1973 No 35 of 1973. They were intended to rectify "…an undoubted harshness in the law whereby lessors can decline the purported exercise of an option by the lessee due to a minor breach of the terms of the lease" - Second Reading Speech, Parl. Deb. Leg. Ass. 12/4/73 p 887. They were introduced following the enactment of Division 4 of Part VIII of the Conveyancing Act of New South Wales - ss 133C-133G. They do not, however, cover the case in which there has been a minor overrun of the time limited for the exercise of an option to renew a lease. The learned primary judge suggested, in a footnote to his judgment, that consideration be given to some amendment in that respect.

Pre-History of Section 51AA 39 The question whether the Trade Practices Act should provide remedies for unconscionable conduct was first agitated before the Swanson Committee and referred to in its Report in August 1976 - Report of the Trade Practices Act Review Committee to the Minister for Business and Consumer Affairs(AGPS, Canberra, 1976). The Committee saw advantages in prohibiting unconscionable conduct or practices in trade or commerce "but as a civil matter only". Unconscionability was "…a standard quite apart from, and usually not encompassed by, the standards of misleading or deceptive conduct". It was equated by the Committee to the "standard which historically developed under the equitable jurisdiction of the courts" and which had been adopted in various State and Territory statutes (par 9.60). No more was heard of statutory change until 1984 when a Green Paper containing a draft provision dealing with unconscionable conduct was published by the Commonwealth Government - The Trade Practices Act: Proposals for Change (AGPS, Canberra, 1984). The proposed new provision would have set out factors which the Court could consider in making a finding of unconscionable conduct. It did not become law. In 1986 however, the Trade Practices Revision Act 1986 (Cth) introduced s 52A. That section provided inter alia: "52A(1) A corporation shall not, in trade or commerce, in connection with the supply or possible supply of goods or services to a person, engage in conduct that is, in all the circumstances, unconscionable." The supply of goods or services to which the section applied was limited to "goods or services of a kind ordinarily acquired for personal, domestic or household use or consumption" (s 52A(5)). Subsection 52A(2) listed a number of matters to which the Court could have regard for the purpose of determining whether a corporation had contravened subs (1). These included the relative strengths of the bargaining positions of corporation and consumer and whether undue influence or pressure was exerted or unfair tactics used against the consumer. The provision was similar in terms to ss 7 to 10 of the Contracts Review Act 1980 (NSW). 40 The Report of the House of Representatives Standing Committee on Industry, Science and Technology, Small Business in Australia: Challenges, Problems and Opportunities, January 1990 (AGPS, Canberra, 1990), also known as the "Beddall Report", recommended the extension of s 52A to cover small business transactions including retail/commercial tenancy agreements where a small business was disadvantaged in the same way as a consumer in its dealings with other parties. A recommendation against the extension of the statutory context to commercial transactions was made in the Report of the Senate Standing Committee on Legal and Constitutional Affairs, Mergers, Monopolies and Acquisitions: Adequacy of Existing Legislative Controls, December 1991 (AGPS, Canberra, 1991). 41 In 1991, the Trade Practices Commission, as it then was, recommended that commercial transactions be governed by the principles underlying the equitable doctrine of unconscionability and that these principles be embodied in a new part of the Trade Practices Act to allow access to the remedies found under the Act - Report of the Trade Practices Commission to the Attorney-General and Minister for Small Business and Customs, Unconscionable Conduct and the Trade Practices Act: Possible Extension to Cover Commercial Transactions, July 1991 (AGPS, Canberra, 1991). A recommendation against the extension of statutory principles of unconscionability to franchising arrangements was made by the Franchising Taskforce to the Minister for Small Business and Customs in December 1991. 42 Part IVA of the Trade Practices Act, initially comprising ss 51AA and 51AB, was introduced into the Act by the Trade Practices Legislation Amendment Act 1992 (Cth). Section 51AA was new. Section 51AB was the old section s 52A renumbered. Section 51AA, was said in the Explanatory Memorandum, to be a provision which: "…will not extend the existing equitable principles of unconscionability, but will make available remedies under the Trade Practices Act and make possible the involvement of the Trade Practices Commission." Paragraph 41 of the Explanatory Memorandum described it as embodying: "…the equitable concept of unconscionable conduct as recognised by the High Court in Blomley v Ryan (1956) 99 CLR 362 and Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447."

The Words of Section 51AA 43 The point of departure for the construction of s 51AA must be the words of the section. Those words require that the conduct prohibited by the section answer the following criteria: · it must be conduct within the meaning of the Trade Practices Act · it must be engaged in in trade or commerce · save for those cases in which the extended operation of the Act applies it must be engaged in by a corporation · it must be unconscionable within the meaning of the unwritten law from time to time of the States and Territories The prohibition created by the section therefore relates to a sub-class of the class of conduct which answers the description "unconscionable within the meaning of the unwritten law…". It is the sub-class defined by the requirements that it be conduct within the meaning of that term as defined in s 4(2) of the Act, engaged in, in the sense used in that same definition and in "trade or commerce". These criteria do not extend the principles by which the unwritten law identifies unconscionable conduct. The unwritten law may, as the section recognises, change from time to time but that change is effected through a process of judicial decision making. The section itself does not operate to extend the application of the principles of unconscionable conduct. In so saying, it must be recognised that, the section now being in force, the development of the judge-made or "unwritten" law may be affected in part by decisions in proceedings in which the section is invoked. 44 The word "unconscionable" is not a term of art. Its ordinary meaning given in the Shorter Oxford English Dictionary is "showing no regard for conscience; irreconcilable with what is right or reasonable". That meaning is not affected by equitable doctrines. They define the cases in which unconscionable conduct will attract equitable relief. But the words of the section and the extrinsic material indicate that it was not intended to extend the categories of unconscionable conduct in respect of which relief could be granted. Its object is to attract, to cases of unconscionable conduct to which it applies, the remedies available under the Trade Practices Act and to allow for those remedies to be pursued by the Commission. That having been said, the reference in the Explanatory Memorandum to the equitable concept of unconscionable conduct as recognised by the High Court in Blomley v Ryan and The Commercial Bank of Australia Limited v Amadio (1983) 151 CLR 447 does not require that the concept be read down to the classes of fact situation with which those cases were concerned. The section is not to be read as though it imported the words of the Explanatory Memorandum or the Second Reading Speech. It speaks of the unwritten law "from time to time". 45 The words "unwritten law from time to time of the States and Territories" identify one body of unwritten law. The courts of the States and Territories are a primary source of that unwritten law, but any differences between them are subject to resolution by the High Court. It is beyond controversy that the unwritten law of the States and Territories is one body of law for the whole of Australia - Lange v Australian Broadcasting Corporation (1997) 189 CLR 520 at 563; Lipohar v The Queen (1999) 200 CLR 485 at 505. Section 51AA, in referring to the unwritten law from time to time of the States and Territories, refers to the common law of Australia. Unconscionable Conduct and Equitable Relief 46 Equity is directed to the prevention of unconscionable behaviour. The fundamental principle upon which equitable relief is granted is that a party having a legal right may not exercise it in such a way that the exercise amounts to unconscionable conduct - Legione v Hateley (1983) 152 CLR 406 at 444 (Mason and Deane JJ). Those words may encompass duress, undue influence and "unconscionable dealing as such" - Hardingham "Unconscionable Dealing" in Finn (ed) Essays on Equity (1985) p 1. Professor Finn (as he then was) himself identified "four not altogether distinct ways" in which the language of unconscionable conduct has been used in the case law: 1. As an organising idea informing specific equitable rules and doctrines which do not in terms refer to, or require, an explicit finding of unconscionable conduct - eg rules on stipulations as to time and notices to complete. 2. In relation to specific equitable doctrines of which estoppel, unilateral mistake, relief against forfeiture and undue influence are examples. They are united by the idea that equity will prevent an unconscionable insistence on strict legal rights and are conditioned upon the explicit finding of unconscionable conduct in the persons against whom they are invoked - Waltons Stores (Interstate) Limited v Maher (1988) 164 CLR 387; Stern v McArthur (1988) 165 CLR 489 and Taylor v Johnson (1983) 151 CLR 422. 3. In relation to the discrete doctrine of unconscionable dealing which concerns one species of unconscionable conduct - Commercial Bank of Australia Ltd v Amadio; Louth v Diprose (1992) 175 CLR 621. 4. In relation to unconscionable conduct founding a cause of action not mediated by any discrete doctrine - Baumgartner v Baumgartner (1987) 164 CLR 137. Finn, Unconscionable Conduct (1994) 8 Journal of Contract Law 37 at 38-39. 47 Four classes of case attracting the application of the language of unconscionability are described in LBC, Laws of Australia, vol 35 (at 31 January 2002) Unfair Dealing 35.5 Notion of Unconscionability [1]-[38]: (i) Exploitation of vulnerability or weakness (ii) Abuse of position of trust or confidence (iii) Insistence upon rights in circumstances which make that harsh or oppressive (iv) Inequitable denial of legal obligations. These are said to be supported by three broad standards: (i) That those in positions of strength or influence should not take advantage of another's relative weakness. (ii) That people should not, by appeal to strict legal rights, cause hardship to others by violating their reasonable expectations. (iii) That those in fiduciary positions should act only in the interests of those to whom those fiduciary duties are owed. 48 Under the rubric of unconscionable conduct, equity will: (i) Set aside a contract or disposition resulting from the knowing exploitation by one party of the special disadvantage of another. The special disadvantage may be constitutional, deriving from age, illness, poverty, inexperience or lack of education - Commercial Bank of Australia Ltd v Amadio. Or it may be situational, deriving from particular features of a relationship between actors in the transaction such as the emotional dependence of one on the other - Louth v Diprose; Bridgewater v Leahy (1998) 194 CLR 457. (ii) Set aside as against third parties a transaction entered into as the result of the defective comprehension by a party to the transaction, the influence of another and the want of any independent explanation to the complaining party - Garcia v National Australia Bank Ltd (1988) 194 CLR 395. (iii) Prevent a party from exercising a legal right in a way that involves unconscionable departure from a representation relied upon by another to his or her detriment - Waltons Stores (Interstate) Limited v Maher; The Commonwealth v Verwayen. (iv) Relieve against forfeiture and penalty - Legione v Hateley (1983) 152 CLR 406; Stern v McArthur. (v) Rescind contracts entered into under the influence of unilateral mistake - Taylor v Johnson. Each of these categories of case (the list may not be exhaustive) involves the identification of unconscionable conduct, albeit its content and degree will vary according to the category. It is a term which has various shades of meaning according to its context. There are different thresholds of conduct in various categories, all of which may be described as unconscionable - G Dal Pont, Varying Shades of "Unconscionable Conduct" - Conduct - Same Term, Different Meaning (2000) 19 Aust Bar Rev 135 at 165. The Scope of Section 51AA 49 Ultimately the language of s 51AA requires identification of conduct able to be characterised as unconscionable in a sense known to the unwritten law. In the context of that law as it presently stands, unconscionable conduct is that which supports the grant of relief on the principles set out in specific equitable doctrines. Five categories of case are set out above. As was said of s 51AA in Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2000) 96 FCR 491 at 509: "[It] prohibits conduct in respect of which a judge in equity would have been prepared to grant relief. The imposition of the prohibition precedes any actual or notional judicial decision. The judge deciding a case under s 51AA will be asking himself or herself whether he or she would have been prepared to grant relief at equity on the basis of an assessment of the conduct in question as unconscionable." Although the application of the principles in that case to a particular circumstance of special disadvantage on the part of a shopping centre tenant was overturned by a Full Court the principles were not impugned - see CG Berbatis Holdings Pty Ltd v Australian Competition and Consumer Commission [2001] FCA 757. See also the discussion in Dietrich The Meaning of Unconscionable Conduct under the Trade Practices Act 1974 (2001) 9 Trade Practices Law Journal 141-148. 50 The approach has been criticised as too wide having regard to the terms of the Explanatory Memorandum and the Second Reading Speech which referred to the special disadvantage cases of Blomley v Ryan and Amadio - See Buckley Section 51AA and Section 51AC of the Trade Practices Act 1974: The Need for Reform (2000) 8 Trade Practices Law Journal 5-16. But as already noted, the terms of the section are not limited to those categories. Although the section is confined by the parameters of the "unwritten law ", it is the unwritten law "from time to time". Neither the Explanatory Memorandum nor the Second Reading Speech can be treated as imposing qualifications which are not found in the words of s 51AA. On the other hand, equitable doctrine does not presently provide a remedy against conduct simply on the basis that it is unfair in the opinion of a judge. It cannot be applied to unconscionable conduct at large. As Gummow and Hayne JJ recently observed in Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 185 ALR 1 at 28, "… the notion of unconscionable behaviour does not operate wholly at large…". In this respect it is not necessary to pass upon the correctness or otherwise of Olex Focas Pty Ltd v Skodaexport Co Ltd (1996) 3 VR 380 which was concerned with the grant of interlocutory relief and the existence of a serious question to be tried rather than any concluded view as to the construction of s 51AA. An Evaluative Judgment Challenged 51 The grounds of appeal seek to set up errors of law and of fact informing the evaluation made by the trial judge that the conduct of the respondents was not unconscionable within the meaning of s 51AA. It may be said at the outset that this Court, in the exercise of its appellate function, will give weight to the evaluative judgment of the trial judge who was closely apprised of the evidence and the context in which he made his findings. Although it can be argued that on the facts as found the Full Court is in as good a position to evaluate the conduct as was his Honour, it does not have the benefit of his exposure to the nuances of the evidence and the atmosphere at trial. 52 The grounds of appeal for the most part endeavour to attack his Honour's conclusion by reference to factors that it is said he should have taken into account or to which he should have given more weight. Irrelevant matters are also said to have been thrown into the balance. The first ground, however, opens with a point of principle as to the test which it was said his Honour applied. His Honour was said to have applied the wrong test for the application of the section in saying that unconscionable conduct in relevant sense, had always to be at the extreme end of the scale of unreasonable conduct. This was a reference to the observation, in his judgment, that it is helpful when assessing particular conduct in particular circumstances to keep in mind that: "…if there is a scale by which to measure unreasonable behaviour by one person towards another, unconscionable is towards the extreme end of that scale." The use of the term "extreme" emphasises the evaluative process that is involved in determining whether conduct is unconscionable in the relevant sense. It is a relative term. And while it may not be the most felicitous term to use it does not import an erroneous view of the law. Importantly his Honour did not say that only conduct at the extreme end of unreasonable behaviour could qualify as unconscionable. Almost by definition the conduct which attracts equitable relief as unconscionable can be viewed as "towards the extreme end" of the scale of unreasonable behaviour by one person towards another. What his Honour did was to make plain that it is not enough to demonstrate that one person has acted unreasonably towards another in the circumstances of a particular case. 53 The other contention raised in the first ground was that his Honour failed to take into account or give sufficient weight to the fact that, to be conduct, eligible for consideration under s 51AA, the conduct must be in trade or commerce. The legislative purpose extended, it was said, to the proscription of unconscionable conduct against people with some business skill and background as the tenants of leased commercial properties. The subtext of this part of the first ground was, and the ACCC so submitted, that s 51AA expanded the unwritten law relating to unconscionable conduct. Counsel for the ACCC said: "The fact that the doctrine is invoked in trade and commerce suggests that the initial contemplation of the law of equity is broader under the Act." 54 The preceding contention must be rejected. The unconscionable conduct proscribed by s 51AA is "conduct that is unconscionable within the meaning of the unwritten law…". The sense and structure of the section is quite contrary to the notion that somehow it directly affects the unwritten law. It may be that as a result of the enactment of s 51AA the concept of unconscionable conduct under the unwritten law will be invoked in circumstances of commercial dealings in which it has not previously frequently been invoked. And it may be that through repeated applications of the unwritten law to new circumstances, that law itself will be developed. But that will be by way of judicial decision-making not by operation of the statute upon its content. There is nothing in his Honour's reasons to indicate that he took an erroneous approach to the content of the unwritten law. It is true that he focussed upon the existence of some "special disadvantage" as a necessary condition of establishing unconscionable conduct for the purposes of the section. But having regard to the factual circumstances that was a feature of the relevant category of conduct under the unwritten law which he had to consider. 55 The further proposition in ground 1 that strict adherence to legal rights in the circumstances may and did amount to unconscionable conduct was no more than an assertion of an evaluation contrary to that made by the trial judge. It exposes no issue of principle on which he may be said to have erred. 56 The second ground of appeal raised a direct challenge to his Honour's evaluation of the respondents' conduct as falling short of unconscionable conduct. In this ground the ACCC relied upon the findings that: (a) Mr Ranaldi had suffered a special disadvantage by virtue of his financial exposure and potential loss; (b) The respondents were aware of that special disadvantage; and (c) The conduct of the respondents in extracting the sum of $70,000 was "avaricious", "opportunistic", and a "very hard bargain". It is assumed for present purposes that the finding of "special disadvantage", which was not challenged, stands. For reasons set out later we do not accept the correctness of that characterisation of the position of Executive Bloodstock or of the Ranaldis. 57 The ACCC expressly conceded in its submissions, and properly so, that mere refusal to permit an option to be exercised out of time would not be likely to be the subject of a valid complaint at law or in equity in the absence of other conduct. It was said that the other conduct, notably the extraction of a large premium in the circumstances of this case rendered the conduct unconscionable. The concession demonstrates the difficulty of the ACCC's position. If it would not have been unconscionable for the respondents to refuse to grant a new lease and simply commence to operate a like business from the same premises themselves, how could it be unconscionable for them to agree to grant a new lease on conditions including payment of a lump sum for the assignment of lease rights from the first respondent, Samton Holdings? 58 The failure to exercise the option within time and the position in which Mr Ranaldi found himself as a result was not attributable to the respondents. The rights which it was necessary for him to secure were lost as a result of his own inaction. He had been told before settlement of the requirement to exercise the option by the previous tenants, the Farruggios, and by the business broker, Dalziell, of ABPS Real Estate and Business Brokers. As his Honour found, during the relevant period, he had legal advice from a solicitor. The respondents acted in a way that many fair-minded people would condemn. That does not make their conduct unconscionable. The Ranaldis' position of special disadvantage as found by his Honour, and that of Executive Bloodstock, arose out of unequal bargaining power. The respondents had the rights which they needed to acquire in order that Executive Bloodstock could operate the business and they had to acquire those rights from the respondents. The respondents were under no legal or equitable obligation to make them available. 59 The third ground of appeal related to alleged collusion on the part of the respondents to concoct evidence about their conduct. This was said to involve a recognition of its seriousness. This concerns things which happened after the event and cannot affect the characterisation of their conduct in dealing with Mr Ranaldi as unconscionable or otherwise. That is an assessment to be made by the Court in light of the circumstances at the time of the conduct in question. 60 In support of the fourth ground of appeal, it was submitted that the device adopted by the respondents to achieve the payment of the $70,000 should have been given greater weight by his Honour in that the transaction would have been illegal in the absence of artificial contrivance. That illegality, namely the payment of key money, was said to reflect the legislature's view of the conduct and should have added considerable weight to a conclusion of unconscionability. It was not contended that the transaction adopted was unlawful. In the circumstances it is difficult to see how the fact that, if differently structured, the payment would have been unlawful could impact upon the characterisation of the conduct at equity. What his Honour did regard as relevant was that initially the respondents made an agreement with Executive Bloodstock which was illegal under the Commercial Tenancy (Retail Shops) Agreements Act. He considered that the Court could have regard to its character as a device to achieve legally what the parties had previously bargained to obtain illegally. He took that factor into account as weighing against the respondents. 61 It might be thought that so long as the transaction was lawful the fact that, alternatively structured, it would have been unlawful, was not relevant to the characterisation of the transaction as unconscionable. However it is not necessary for present purposes to determine that question as his Honour did take the consideration into account and there is nothing in his approach which suggests that he failed to give it proper weight. Nor can it be said that he failed to give proper weight to the amount of money demanded and paid in order to remain in possession. It is notable that the agreement made did allow Executive Bloodstock to generate a profit in excess of $100,000 during the period of nearly twelve months ended in June 1998 and enabled the company to sell the business at the end of that period for $180,000. As his Honour observed, Mr Ranaldi could be taken to have calculated that it was in his business interests to pay the $70,000 to regain the financial position which Executive Bloodstock had lost by his omission. He had made what could have been a $145,000 mistake and he and his wife could have lost their home. These considerations having been addressed by his Honour, it cannot be said that he failed to give proper weight to the amount of money demanded and paid in order to remain in possession. 62 The fifth and final ground asserted that his Honour took into account irrelevant matters. It is sufficient to say that none of those matters is irrelevant to the assessment of the conduct which his Honour undertook. Having regard to the fact that the transaction was a negotiated settlement his Honour was said to have overlooked his earlier finding that Mr Ranaldi had no choice in the matter. The ACCC argued that that finding was clearly correct and that there was no sense whatsoever of negotiation. However the fact that somebody is in a position of special weakness because they have lost through their own fault rights necessary to the operation of their business does not provide a basis upon which a claim for unconscionable conduct can be built because another party puts a premium on the acquisition of those rights. To hold otherwise would be, in effect, to compel the other party to enter into a transaction which it could not be compelled by law to do and which, absent any estoppel, no doctrine of equity requires. Special Disadvantage 63 The preceding discussion has focussed upon the way in which his Honour characterised the conduct of the respondents, on the assumption, as his Honour found, that Executive Bloodstock and the Ranaldis were in a situation of special disadvantage. That assumption is to some degree artificial having regard to the interdependence of the issues of disadvantage and the conduct complained of. Although we agree, for the reasons set out above, that his Honour's conclusions about the respondents' conduct were correct, we do not want to be taken as agreeing with the finding of special disadvantage. 64 At the time they were negotiating for the grant of the second lease, the Ranaldis and Executive Bloodstock were at a serious disadvantage. They had very little bargaining power. As a practical matter, they were not in a position to make any decision other than to pay the price demanded by the respondents. It may be accepted that the categories of special disadvantage are open and may extend to what French J, at first instance in Australian Competition and Consumer Commission v Berbatis Holdings Pty Ltd (ACN 008 799 040) [2000] FCA 1893, called "situational disadvantage" as well as the constitutional disadvantages engendered by such disabilities as illiteracy or lack of education, illness or infirmity. It is not necessary for present purposes to explore the limits of those categories. On the findings of fact made by his Honour it is difficult to see how it would be correct to characterise the case as one of "special disadvantage" in the relevant sense. The disadvantage under which the Ranaldis and Executive Bloodstock laboured had arisen from a combination of considered commercial judgment (the decision to borrow heavily in order to purchase the business) and Mr Ranaldi's oversight in neglecting to exercise the option in good time. These factors did not impair the Ranaldis' ability to make a decision about the best course of action in the circumstances. At least in the case of an experienced business person there must, in our opinion, be something more than commercial vulnerability (however extreme) to elevate disadvantage into special disadvantage. 65 Characterisation of disadvantage as "special" involves the recognition that it would be unconscionable knowingly to deal with the person so affected without regard to his or her disability, be it constitutional, in the sense of inherent, or situational, in the sense of arising from a particular set of circumstances. In effect this may require some special conduct or care which is not necessary in the absence of such disadvantage. If, for example, the disability relates to language, illiteracy or lack of education, conscientious dealing may ensure the bargaining deficit is compensated for by the provision of special assistance such as independent advice which will either enable a proper understanding of the transaction or overcome the disadvantage arising from want of a proper understanding. 66 In this case it is difficult to see how the respondents might have catered for the disadvantage suffered by the Ranaldis and Executive Bloodstock other than by granting them a new lease on the same terms as would have applied had the option been exercised in accordance with the first lease. Yet it was accepted on all sides that the respondents were not obliged to offer the lessee a further term. The Ranaldis' situation could not be characterised as one of special disadvantage only because the respondents failed to make an offer that they had no obligation to make. It cannot be the case that any tenant whose careless failure to exercise an option to renew a lease results in economic disadvantage would be entitled to a renewal of the term. A fortiori it cannot be the case that a tenant in that situation and absent other circumstances, is in a situation of special disadvantage. Support for this position can be found in the judgment of the Full Court in CG Berbatis Holdings Pty Ltd v Australian Competition and Consumer Commission [2001] FCA 757 at [82]: "It is inappropriate to characterise the detriment that a tenant has by reason of the imminent expiration of a lease as a special disadvantage." 67 It may be that a case of economic duress could be made out in factual circumstances similar to those in this case. For although traditionally expressed as going to "voluntariness" or "cohesion of the will" it is recognised in modern analysis that "duress does not deprive a person of all choice but merely presents him with a choice between evils" - McKendrick, Contract Law, 3rd Edition 1997 at 316. Moreover there is the possibility that "lawful act duress" may be contemplated in common law cases - CTN Cash and Carry Limited v Gallaher Limited [1994] 4 All ER 714 - Steyn LJ. However it is very doubtful that the circumstances of this case could be regarded as being of that most extraordinary kind necessary to justify a finding of economic duress. It may be an argument for another day but was not raised in this case. In any event it is questionable whether it would be covered by s 51AA at all. We express no opinion on that matter. Conclusion 68 For the preceding reasons the appeal should be dismissed with costs. I certify that the preceding sixty eight (68) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Court.

Associate: Dated: 6 February 2002 Counsel for the Appellant: Mr NW McKerracher QC with Mr TJ Carey

Solicitor for the Appellant: Australian Government Solicitor