Australian Competition & Consumer Commission v Samton Holdings Pty Ltd

BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION

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

INTRODUCTION 1 The applicant, Australian Competition and Consumer Commission, seeks declaratory relief and other remedial orders against the first to seventh respondents on the basis that the first respondent engaged in unconscionable conduct contrary to s 51AA of the Trade Practices Act 1974 (Cth) ("the Act") and that the other respondents were directly or indirectly knowingly concerned in the first respondent's contravention of the Act. The conduct in question was to require a lessee who had failed to exercise an option to extend the term of its lease, to pay $70,000 for the assignment of a lease for the same extended term. The new lease had been granted to the first respondent (a company owned and controlled by four of the lessors) to structure the receipt of the money in such a manner that it did not constitute "key money" within the meaning of that term in the Commercial Tenancy (Retail Shops) Agreement Act 1985 (W.A.) ("the State Act").

FACTUAL AND PROCEDURAL BACKGROUND 2 The following narrative of the factual background refers mainly to matters which were not in dispute, save where express reference is made to a matter being in issue. 3 These proceedings concern the business of a lunch bar ("the Business") conducted at premises ("the Premises") in Canning Vale, a Perth suburb. The Premises formed part of a larger piece of land, which I will call "the Land". The second to seventh respondents owned the Land as tenants-in-common. The second respondent operated a service station business ("the Mobil Service Station") on the rest of the Land. 4 Between June 1992 and February 1997 a company controlled by a Mr and Mrs Farruggio carried on the Business. Mr and Mrs Farruggio became the lessees of the Premises by a deed of assignment dated 15 June 1992 of the leasehold interest created by a lease dated 20 March 1992 ('the Lease") from the then registered proprietors of the Land. On or about 29 January 1993, the second to seventh respondents, being various members respectively of the Parasiliti and Sciarretta families became registered as proprietors of the Land as tenants in common ("the Proprietors"). They thereby became the lessors of the Premises. In 1995 disputes arose between the Proprietors and Mr and Mrs Farruggio in relation to their tenancy of the Premises. The disputes became the subject of an application by Mr and Mrs Farruggio to the Commercial Tenancy Tribunal, but were resolved by settlement in October 1996. The documents recording that settlement were not prepared and executed until some months later. The term of the Lease was due to expire on 2 June 1997. However, the Lease contained an option whereby its term could be extended for seven years from 2 June 1997 upon the lessee giving written notice to the lessors to that effect at least three months prior to, but not earlier than six months prior to, 2 June 1997 ("the Option"). According to the terms of the Option, written notice was required to be given by the lessee by no later than 2 March 1997. 5 On 2 December 1996 Mr and Mrs Farruggio agreed to sell the Business to a company called Executive Bloodstock Services Pty Ltd ("Executive Bloodstock") for $205,000 allocated as to $145,000 for goodwill, $50,000 for plant and equipment and $10,000 for stock-in-trade. It was an express condition of that agreement that the Proprietors would consent to the assignment of the Lease to Executive Bloodstock. On 16 January 1997 Mr and Mrs Farruggio's solicitors wrote to the Proprietors' solicitors requesting the Proprietors' consent to the assignment of the Lease to Executive Bloodstock and sought an urgent reply. Mr Neil Philip Gentilli, who until the first day of the hearing was the eighth respondent to this application (and remains the third cross-respondent), was at all material times, as a partner in his firm, the solicitor for the Proprietors. Mr Gentilli, on behalf of the Proprietors, promptly responded (by letter dated 17 January 1997) to that request by asking for a copy of a company search for the proposed assignee, its accounts for the previous three years, details of any proposed guarantors and statements of their assets and liabilities. Mr Gentilli, in that letter, reserved his clients' rights to request further information. Subsequently he did so. The information requested was provided and on 18 February 1997 the Proprietors consented to the assignment of the Lease to Executive Bloodstock. By a deed of assignment probably executed on about 25 February 1997 but stamped on 17 March 1997, the Lease was assigned by Mr and Mrs Farruggio to Executive Bloodstock. The deed of assignment included guarantees by a Mr and Mrs Ranaldi of the performance of the assignee's obligations under the Lease. Mr and Mrs Ranaldi were at all relevant times the only directors of Executive Bloodstock and owned all the shares in its issued capital. 6 Settlement of the purchase of the Business by Executive Bloodstock took place on 26 February 1997. The applicant asserts (and this is in issue) that, on or about 28 February 1997, Mr Ranaldi on behalf of Executive Bloodstock orally advised the Proprietors that it intended to exercise the Option. On or about 18 March 1997 (the respondents say that it was on 20 March 1997) Executive Bloodstock purported to give written notice to the Proprietors of its intention to exercise the Option. The precise details of what then transpired are in issue and are the subject of factual findings below. But the Proprietors took the position (and told the Ranaldi interests) that the Option had not been validly exercised and that Executive Bloodstock would have no lease of the Premises after 2 June 1997. In the ensuing weeks, negotiations took place between the parties. It is the applicant's case that the Proprietors demanded payment of $70,000 as consideration for taking the steps necessary to vest a further seven year leasehold term in Executive Bloodstock. The first to seventh respondents deny this, and say that Mr Ranaldi approached them with a proposal that Executive Bloodstock pay $50,000 for a new term of lease. Eventually the parties reached agreement in respect of such an arrangement. The arrangement involved the Proprietors granting a lease (executed on 29 May 1997) of the Premises for a term of seven years to the first respondent, Samton Holdings Pty Ltd ("Samton") and an assignment of that new lease by Samton to Executive Bloodstock. On or about the same day, the Proprietors caused a deed of assignment by Samton to Executive Bloodstock of that lease to be delivered to it for execution. Part of the terms of that document provided that it was conditional upon and would have no force and effect until payment by Executive Bloodstock to Samton of $50,000 before 2 June 1997. It also contained an agreement that Executive Bloodstock would pay Samton a total of $70,000 by paying the sum of $50,000 on 2 June 1997 and the balance of $20,000 by ten equal consecutive monthly instalments from 3 July 1997. The deed of assignment was duly executed, Executive Bloodstock paid the sum of $50,000 to Samton and between June 1997 and May 1998 paid to it the balance of $20,000. 7 It is common ground between the parties that Executive Bloodstock had not validly exercised the Option to extend the term of the Lease. 8 The applicant's case, in summary, is that at all material times Executive Bloodstock as tenant and/or Mr and Mrs Ranaldi as its sole shareholders were in a situation of special disadvantage compared with Samton which Samton and the Proprietors knew or ought to have known. The applicant pleads that Samton, by imposing the condition that it be paid $70,000 for the assignment of the seven year term, engaged in conduct that was unconscionable within the meaning of the unwritten law within, in turn, the meaning of that expression in s 51AA of the Act. The applicant claims that the Proprietors were (in different ways) directly or indirectly knowingly concerned in or party to Samton's contravention of the Act. Although the applicant originally sued Mr Gentilli as also being knowingly concerned in or party to that contravention, its claims against him were dismissed by consent on the first day of the hearing. In his amended defence Mr Gentilli had challenged the Constitutional validity of s 51AA. Notices were given to the Attorneys-General in accordance with s 78B of the Judiciary Act 1903 (Cth), but none intervened. The other respondents did not raise any Constitutional issue in their defence. Although the applicants' claims against Mr Gentilli have been dismissed, I shall deal briefly, later in these reasons, with the Constitutional issue. As a matter of convenience, I shall henceforth refer to the first to seventh respondents as "the respondents". 9 The applicant seeks a wide range of orders. They include declarations that the respondents have contravened the Act or have been knowingly concerned in such contravention in the manner which I have summarised above, injunctions restraining them in various ways, an order that the respondents compensate Executive Bloodstock and/or Mr and Mrs Ranaldi, publication of advertisements, findings of fact, the undertaking of compliance programmes and costs. 10 The respondents deny that Executive Bloodstock and/or Mr and Mrs Ranaldi were in a position of special disadvantage compared with Samton. The essence of their defence is contained in the following paragraphs: "21.1 neither Executive Bloodstock nor the Ranaldis (as mere guarantors under the Lease) had any rights, legitimate or otherwise, to obtain an extension of the Lease; and 21.2 the alleged lack of relative bargaining power pleaded in subparagraph 40(c) if it existed, which is not admitted, was a consequence of the failure of Executive Bloodstock to give notice in writing prior to 2 March 1997 to exercise the Option and not by reason of any of the matters pleaded in paragraph 38 of the statement of claim. [The matters pleaded in paragraph 38 comprised seven sets of factual particulars by reason of which the applicant claimed that Executive Bloodstock and/or Mr and Mrs Ranaldi were in a situation of special disadvantage compared with Samton.] . . . 24 Pursuant to the compromise Executive Bloodstock was granted a right to occupy the premises and carry on business therefrom for 7 years from 3 June 1997 ("the second assignment"). 25 But for the compromise the proprietors would have resumed possession of the premises as was their lawful entitlement and the proprietors would by the occupancy of the premises and the conduct of a business thereon have derived a financial benefit. 26 It would be unconscionable for the Court to grant the relief sought by the applicant as such would enable Executive Bloodstock to have had the benefit of the compromise and to have denied the proprietors the benefit pleaded in paragraph 25 above without any payment. 27 The respondents say further in answer to the application that their conduct could not have been unconscionable as alleged by reason of the following matters: 27.1 the proprietors were lawfully entitled to refuse Executive Bloodstock any extension of the Lease and to resume possession of the premises on expiration of the Lease; 27.2 the applicant alleges that such conduct would have caused Executive Bloodstock to suffer loss and damage in the order of $180,000; 27.3 by virtue of the compromise Executive Bloodstock was permitted to continue its business which it sold for $180,000 for goodwill and plant in June 1998; 27.4 by reason of the respondents' alleged unconscionable conduct Executive Bloodstock was advantaged to the extent of $110,000 plus the profits it derived in the conduct of the business from June 1997 to June 1998." 11 On 25 May 1999 Samton and the Proprietors filed a cross-claim against Mr Ranaldi as first cross-respondent, Executive Bloodstock as second cross-respondent and Mr Gentilli as third cross-respondent. Their cross-claims against Mr Gentilli are based on alleged breach of contract and/or duty of care. Those cross-claims have been stayed by consent until further order, because it was thought appropriate for the hearing of them to await the determination of the principal application. By their cross-claims against Mr Ranaldi and Executive Bloodstock, the Proprietors seek indemnity from them in respect of any liability found due by the cross-claimants to the applicant, an account of any benefits received by the first and/or second cross-respondents 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 their costs in defending the applicant's claim. It will be remembered that the applicant is the Australian Competition and Consumer Commission suing, in part, on behalf of Executive Bloodstock and Mr and Mrs Ranaldi, for compensation.

THE ISSUES TO BE DECIDED, MY FINDINGS AND MY REASONING

WHETHER MR RANALDI TOLD THE PROPRIETORS THAT HE WAS GOING TO EXERCISE THE OPTION? 12 The applicant maintained that the first occasion on which the Proprietors received an indication that Executive Bloodstock intended to exercise the Option was on or about the morning of 3 February 1997. Mr Ranaldi's evidence was that on or about that date he prepared a letter addressed to the Proprietors advising them of his intent to purchase the Business and handed that letter to Mr Francesco Parasiliti at the Mobil Service Station. Mr Ranaldi said that at the same time he asked Mr Francesco Parasiliti whether there was any opportunity to get a further option (by which he said he meant an opportunity to obtain tenure beyond what he described as "the current option period"). Mr Francesco Parasiliti, so Mr Ranaldi deposed, had said "we'll look at it". 13 Mr Ranaldi was unable to produce a copy of this letter. Mr Francesco Parasiliti denies both the receipt of the letter and the terms of the abovementioned conversation. 14 Mr Ranaldi also gave evidence that on or around 28 February 1997 he had a further conversation with Mr Francesco Parasiliti at the Mobil Service Station during which he said: "Frank, look I'm sorry I haven't had the chance, but I'll get that letter into you straight away to exercise the option." 15 Mr Ranaldi said that Mr Francesco Parasiliti's response was simply "okay". Mr Ranaldi also said that the conversation was very short, as it "… was just an exchange of words as we were passing each other." 16 Mr Francesco Parasiliti denies any such conversation. 17 I have found the resolution of these two issues of fact to be quite difficult. Mr Ranaldi was in the witness box for a long time, much longer than the time spent in the witness box by Mr Francesco Parasiliti, so I had a good opportunity to observe him. My impression of Mr Ranaldi was that, generally, he was a reliable witness, subject to some reservations to which I come in a moment. I thought he was generally trying to give evidence to the best of his recollection of what took place. On several occasions he agreed readily with propositions put to him in cross-examination, where an evasive or dishonest witness might have taken issue. But there were some aspects of his answers in cross-examination which led me to conclude that I could not rely entirely on all of his evidence. Counsel for the respondents, in closing address, referred me to some inconsistencies in Mr Ranaldi's evidence. I gave some weight to those inconsistencies, but not much. The main factor which troubled me was Mr Ranaldi's preparedness to describe the net profit derived by Executive Bloodstock from the lunch bar for the period of just under twelve months which ended in June 1998 as being "… a minimal profit, based on all the payments I had to make." That net profit was slightly over $100,000. It was that discrepancy which caused me to have the reservations to which I have referred above. 18 I formed the impression that Mr Francesco Parasiliti was a witness who would concede nothing that might remotely be regarded as prejudicing the respondents' case. At one stage some of his answers to quite reasonable questions in cross-examination showed him to be a rather truculent and unco-operative witness. 19 In the end, however, I formed the view that if Mr Ranaldi had in fact had the conversations with Mr Francesco Parasiliti on the two occasions in February 1997, he would have told his solicitor Mr M S Cockram about them. Mr Ranaldi retained Mr Cockram on 21 March 1997, a relatively short time after the two occasions in question. It appears from the evidence that Mr Cockram took fairly comprehensive initial instructions on 21 March 1997, which were followed up by several telephone conversations with Mr Ranaldi over the next ten days or so. Nowhere in those instructions is there any mention of the two conversations which Mr Ranaldi claims he had with Mr Francesco Parasiliti during the previous month. If they had taken place, my assessment of Mr Ranaldi is that he would have told Mr Cockram about them and Mr Cockram would have recorded such instructions in his quite detailed notes. Mr Cockram, at this stage, was engaged in making fairly strong communications, both in writing and oral, to the respondents' solicitors in which he maintained that his client was entitled to an extension of the Lease. Mr Cockram, in his letter dated 21 March 1997 to Messrs Jackson McDonald, made reference to the possibility that the respondents might be estopped from refusing to grant the extension of the Lease, but only on the basis of their behaviour up to and including the assignment of lease. In those circumstances I think it is most unlikely, to the point of being almost inconceivable, that Mr Ranaldi had told him about these two alleged conversations. I find that Mr Ranaldi did not mention either of these two alleged conversations to Mr Cockram. The fact that he did not do so leads me to find, as I do, that on the balance of probabilities, the two conversations did not take place. 20 As a matter of fairness, I should add that I am not, in reaching this conclusion, suggesting that Mr Ranaldi deliberately gave false evidence in the witness box. I think that just as likely an explanation for what has transpired is that at some, possibly fairly early, stage he incorrectly included such assertions in his statement to the applicant and quite possibly now firmly believes that the conversations took place. 21 In the overall context of the case, I do not think that these findings are of very much significance. 22 First, the reliance upon the word "further" at the time of the first alleged conversation would not, in an exchange with a service station operator who had only limited formal education, have the significance which the applicant sought to attribute to it. That is, that Mr Ranaldi was assuming exercise of the seven year option and looking for a further one. 23 Secondly, even without these conversations, it must have been abundantly clear to the individual respondents that Executive Bloodstock would, in all probability, want to exercise the Option. Despite the respondents' denials that they knew what Executive Bloodstock had agreed to pay for the Business, I find that they did know the purchase price. I refer to Mr Gentilli's letter of 13 February 1997 to Mr Kevin Dalziell, the business broker, in which he 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." 24 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 Business was conducted on the apron adjoining the Mobil Service Station operated by Mr Francesco Parasiliti. He would, in my view, have a fair idea of the turnover of the Business. He would know that three months turnover would not result in such a large net profit as to recoup an investment of goodwill in the order of $145,000. Mrs Farruggio's uncontradicted evidence was that in the proceedings in the Commercial Tenancy Tribunal between her and her husband on one side and the Proprietors on the other, the turnover of the Business formed part of the evidence given. Mr Francesco Parasiliti may not have known the precise figure paid for goodwill, but he would have known what plant was on the Premises and the approximate value of stock (the Parasiliti and Sciarretta families had conducted similar businesses to the Business) and he would have been able to calculate that goodwill must have been by far the largest single item purchased and that it represented approximately $145,000 of the known total purchase price of $195,000 plus stock. 25 Mr Salvatore Parasiliti, who was mainly responsible for the negotiations in this matter on behalf of the respondents (and who, in his witness statement, said that he looked after their real estate interests) seemed to me to be a shrewd and intelligent businessman. The other individual respondents confirmed that he managed their real estate interests. I find that he was well aware (and through him, if not otherwise, as their agent) the other respondents were well aware that there was an overwhelming likelihood that Executive Bloodstock would want to exercise the Option. In those circumstances the fact that I have found against the applicant on the question of the two alleged conversations in February 1997 loses much, but not all of its significance. The significance which the applicant put on these conversations was that Mr Francesco Parasiliti's acknowledgment of what Mr Ranaldi was alleged to have said to him on or about 28 February 1997 and the Proprietors' failure, between that date and 2 March 1997, to indicate that neither that oral indication of exercise or option on its own or when combined with written confirmation after 2 March 1997 would be accepted as proper notice, comprised part of the respondents' unconscionable conduct. 26 At one stage, as the evidence unfolded, I harboured suspicions that the individual respondents had engineered the situation which developed. By that I refer to the manner in which, from about 13 February 1997, they delayed settlement of the transaction whereby Executive Bloodstock purchased the Business, to a point within four days of the expiry of the time limit for exercise of the Option. Before 13 February 1997 the request for the Proprietors' consent to the assignment to Executive Bloodstock of the Lease had proceeded with reasonable expedition, given the need also to document the settlement of the disputes between the Proprietors and Mr and Mrs Farruggio. But later, more and more information was required before the Proprietors' consent to the assignment of lease was forthcoming. Mr Dalziell expressed his impatience at the delay in no uncertain terms [Exhibit A1 p 82]. It must also have been known to the individual respondents that Mr Ranaldi would, as he said in evidence 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 evidence shows that there had been a long-running dispute between the Proprietors and the former tenants, Mr and Mrs Farruggio, and that some of the respondents were quite interested in operating the lunch bar business themselves. There was some slight hint of deliberate delay, at one stage, in the applicant's submissions, and the topic was raised briefly with Mr Salvatore Parasiliti in cross-examination, but it was not pressed and I was not asked to make a finding that the respondents had engineered the situation in advance. I approach the matter on the assumption that they did not do so.

WHAT TRANSPIRED IN MARCH AND EARLY APRIL 1997? 27 It was common ground that during this period there were three meetings between the three male respondents on the one side and Mr Ranaldi on the other. There was a factual dispute about the dates of these meetings and what was said at them. The divergence between the parties can be readily appreciated by comparing Mr Ranaldi's witness statement with those of the three male respondents. My findings, and the reasoning for those findings, are as follows. 28 I accept Mr Parasiliti's evidence that in March 1997 he was aware that Executive Bloodstock had failed to exercise the Option by the last date for its exercise i.e. 2 March 1997. I do not accept his explanation that he came upon this information as part of an exercise of reviewing the lease documents for three properties as referred to in paragraph 20 of his statement. He said that he then telephoned Mr Gentilli for legal advice about the failure by Executive Bloodstock to exercise the Option. As I have mentioned above, Mr Salvatore Parasiliti managed the respondents' real estate interests and I formed the impression that he was a shrewd and intelligent businessman. As such, I think that it would have been more likely than not that he would have allowed as much time as possible to expire after 2 March 1997 rather than bring the issue to a head earlier, as he claimed in his witness statement. I formed much the same impression of Mr Salvatore Parasiliti as a witness as I formed of his brother Mr Francesco Parasiliti. I refer to his evidence in cross-examination, for example, generally between pages 112 and 119 of the transcript. Mr Salvatore Parasiliti was, in my view, a witness who tailored his evidence to suit what he considered to be the interests of the respondents' case. He would not concede even the most probable of events (see for example pages 117, and 138 - Mr Gentilli's fax - of the transcript) and denied matters to which he had deposed in his witness statement (see page 116). I decided that it would be unsafe to rely on his oral evidence unless it was consistent with reliable contemporaneous records or otherwise corroborated. Mr Gentilli, in his capacity as eighth respondent signed a witness statement which was served on the other parties but not tendered in evidence. However, it was put to Mr Salvatore Parasiliti in cross-examination. Mr Salvatore Parasiliti acknowledged that Mr Gentilli's witness statement proceeded in a chronological sequence through the events of February and March 1997, but there was no mention of Mr Salvatore Parasiliti seeking and obtaining legal advice about the respondents' rights due to the failure on Executive Bloodstock's part to exercise the Option. Mr Gentilli's correspondence shows, as might be expected of a legal practitioner of his standing, a careful approach to recording matters. In my view, the balance of probability is that if Mr Salvatore Parasiliti had sought and obtained this advice before Executive Bloodstock purported to exercise the Option, Mr Gentilli would have made a note of this and would have referred to it in his witness statement. At one stage counsel for the respondents objected to a later, similar, use of Mr Gentilli's witness statement on the basis that it was prepared "consistent with the maintenance of legal professional privilege". I am prepared to accept that. But the privilege was waived on the first day of the hearing. If Mr Gentilli had made such a note, the respondents had every opportunity to clarify the matter, but they did not do so. 29 I find that it was Mr Ranaldi's purported exercise of the Option which brought matters to a head. In reaching that conclusion I have placed considerable weight on Mr Cockram's diary note of 21 March 1997 where he recorded his initial instructions, taken on that date, from Mr Ranaldi. The notes included the following: "On the 20 March client suddenly realised that the notice to exercise option needed to be exercised and he delivered a letter to the lessors seeking the 7 year extension. He was informed that that extension would not be granted. He was also informed by the lessors (some people called S & F Parasiliti) that they had no argument with client but that they did have a very serious argument with the previous owners of the business the Farruggios arising out of some disputes that had occurred during the currency of the lease and they wanted to get back at them." 30 These notes were made the day after the occurrence of the events which they record. There is some further documentary evidence relevant to the point, some of which comprises photocopy documents which are quite hard to read. From pages 60, 118 and 273 of Exhibit A1 (which are three photocopy letters from Mr Michael Barnao, Mr Ranaldi's accountant) it would appear that Mr Barnao's fax number in December 1996 and February 1997 was 3063078 or possibly 3063076. Exhibit A3 is a photocopy fax from Mr Ranaldi to Mr Barnao. The date of that fax appears to be 18 March 1997 and it appears to have been addressed to fax number 3063076. Exhibit R1 is a photocopy fax from Mr Barnao. The date of the fax (i.e. in the text of the transmission) is quite clearly shown as 18 March 1997. The imprint on the transmission record is not nearly so clear. Senior counsel for the applicant maintained that the first digit was clearly a 1, being consistent with the date 18 March 1997. But the second digit looks like the top part of a zero. 31 The next document is Exhibit R4 being a handwritten fax dated 20 March 1997 from Mr Salvatore Parasiliti to Messrs Jackson McDonald, marked for the attention of Mr Gentilli. That fax read as follows: "Enclosed is a copy of letter from Frank Ranaldi received 20/3/97 at 1.30pm. Please advise him that his option was exercised late, please." 32 My findings on this evidence are that, on a balance of probabilities, the following occurred: 1. On 18 March 1997 Mr Ranaldi sent the fax which is Exhibit A3 to his accountant, Mr Barnao, instructing him to prepare a notice of exercise of the Option. 2. On the same date Mr Barnao prepared the short document which is Exhibit R1 and faxed it to Mr Ranaldi for his signature. 3. Mr Ranaldi signed that document and on the same date handed a copy to Mr Francesco Parasiliti at the Mobil Service Station. 4. On 20 March 1997 Mr Barnao faxed a further copy of the notice of intention to exercise the Option to the Caltex Service Station at Westfield, which was a business conducted by Mr Salvatore Parasiliti and Mr Sciarretta and their wives. 5. On receipt of that fax, Mr Salvatore Parasiliti sent a fax on 20 March 1997 (Exhibit R4) to Messrs Jackson McDonald. 6. On the same date (20 March 1997) Mr Salvatore Parasiliti telephoned Mr Gentilli and obtained some advice. This is confirmed by the first paragraph of Mr Gentilli's fax dated 24 March 1997 to Mr Salvatore Parasiliti [Exhibit A9]. 33 I appreciate that the documentation does not point inexorably to these conclusions. There are the problems of deciphering the dates on the transmission record on both faxes which comprise Exhibit A3 and Exhibit R1. Furthermore, the date upon which I have found Mr Ranaldi personally delivered the notice of exercise of option was 18 March 1997, whereas Mr Cockram's note refers to 20 March 1997. My conclusion is that Mr Ranaldi, in giving instructions to Mr Cockram, elided the personal delivery by him on 18 March 1997 to Mr Francesco Parasiliti at the Mobil Service Station and his accountant's faxing of that same notice to Mr Salvatore Parasiliti at Caltex Westfield. I think the inherent likelihood is that Mr Ranaldi had asked Mr Barnao on 18 March 1997 to treat the matter as an urgent one, that Mr Barnao did so and faxed the document to Mr Ranaldi for his signature on the same day. In those circumstances, I think that, on the balance of probabilities, Mr Ranaldi would have personally delivered the document to the nearest of the respondents (Mr Francesco Parasiliti) on the same day. 34 Unfortunately Exhibit R4 was tendered without there being attached to it the copy letter referred to in it. In making my conclusions, I have inferred that if that further document had been tendered it would have been a further facsimile in the same terms as Exhibit R1, but probably showing it to be a transmission made on 20 March 1997 by Mr Barnao. The first paragraph of Mr Salvatore Parasiliti's fax in which he records the time and date of receipt of the letter has, in my view, the ring of truth about it. 35 It was in those circumstances, having in all probability obtained telephonic advice from Mr Gentilli that the exercise of the Option was invalid, that, so I find, the respondents called a meeting the next day i.e. 21 March 1997 at the Mobil Service Station. This was the first of the three meetings. I accept what I see as the essence of Mr Ranaldi's evidence about what took place at that meeting. The essence was that the respondents were not going to treat the Option as having been validly exercised, and told him so. I accept that portion of the respondents' evidence which confirms that at the first meeting (I reject their evidence that the meeting took place on 17 or 18 March 1997) they informed Mr Ranaldi that they were going to take over the Premises and run the Business themselves. I reject their evidence that Mr Ranaldi broke down, offered to pay the respondents and asked "… what's it worth". The uncontradicted evidence shows that Mr Ranaldi has been in the business world for several decades both as an employee and on his own account. This included about 15 years partly based in the United States of America engaged in the export of racehorses. My lengthy observation of him in the witness box led me to the conclusion that, even in the circumstances described above, he is not the sort of person who would break down and instantly start offering to pay money. He impressed me as a much more circumspect person, one who would immediately seek legal advice. Mr Cockram's evidence shows that that is precisely what Mr Ranaldi did on the afternoon of 21 March 1997. 36 On the same day, 21 March 1997, Mr Cockram sent a fax to Mr Gentilli at Messrs Jackson McDonald [Exhibit A8, Annexure MSC 5]. This was the letter in which Mr Cockram stated that his client did not concede that the respondents had the right to refuse to grant the new lease and that it would take every possible action including reliance upon an estoppel. 21 March 1997 was a Friday. On the following Monday, 24 March 1997, Mr Gentilli sent a fax to Messrs Salvatore Parasiliti and Antonio Sciarretta, which omitting formal parts read as follows: "I refer to our conversations on 20 March 1997 and enclose a copy of a letter from solicitors acting for the new lessee dated 21 March 1997. 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." 37 I accept Mr Ranaldi's evidence that shortly after 21 March 1997 there occurred the conversation between Mr Francesco Parasiliti and himself which is recorded in paragraph 39 of Mr Ranaldi's statement. The likelihood is that the conversation took place shortly after 24 March 1997, by which time the respondents had a copy of Mr Cockram's letter of 21 March 1997. The essence of what Mr Francesco Parasiliti told Mr Ranaldi was to instruct Mr Cockram 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." I accept Mr Ranaldi's evidence that the conversation, on the part of Mr Francesco Parasiliti, was very aggressive and that his attitude was intimidatory. My impression from the manner in which Mr Francesco Parasiliti behaved in the witness box is that this was precisely how he was likely to have reacted at the time of the receipt of Mr Cockram's letter. 38 I think that following the receipt of the fax dated 24 March 1997 from Mr Gentilli, the respondents reviewed their position with a view to obtaining the payment referred to in the last paragraph of Mr Gentilli's fax, rather than retaking possession of the Premises at the expiry of the then current term and thus have an expensive fight on their hands. 39 I am satisfied on the evidence that the second meeting between the three male respondents and Mr Ranaldi took place on or about 31 March 1997. Mr Ranaldi put that date on the meeting and the respondents' evidence was that it took place "in the week before 28 March 1997". I do not think that the difference of a few days matters, or that I need to find the precise date of the meeting. 40 The respondents' evidence was that at the second meeting Mr Ranaldi offered to pay $50,000 immediately for an extension of the lease and that Mr Salvatore Parasiliti had responded: "I'm not making a decision mate. I don't know what the position is now. I've got a cook lined up and our wives will be taking over. We'll come back to you." 41 I do not accept the respondents' version of what took place. 42 As I have mentioned above, I think that Mr Gentilli's fax of 24 March 1997 had given the respondents pause for thought and that they had decided to demand a lump sum payment. 43 Mr Ranaldi had been a horse trader for well over 15 years. My impression of him was that he would not be the first to mention a cash figure in negotiations. I accept his evidence that he did not do so. I find that at the second meeting, on or about 31 March 1997 the respondents demanded payment of $70,000 as the price for extending the lease for seven years. Mr Ranaldi left the meeting on the basis that he would see what he could do to raise the money. He was cross-examined (and submissions were made by the respondents' counsel to like effect) that there was some inconsistency between the basis upon which he said the second meeting concluded and his conversation on either 3 or 4 April 1997 with Mr Francesco Parasiliti, when he asked the latter what was happening about the lease. 44 I do not see the two situations as being inconsistent. The second meeting had finished on the basis that Mr Ranaldi was to go away and see whether he could raise the money. I accept his evidence that he had decided that he had to meet the respondents' demand and that he told Mr Cockram that that was what he was going to do. Mr Cockram's evidence is that on 1 April 1997 he telephoned Mr Ranaldi to discuss the progress of the matter. Mr Ranaldi had told him that the respondents required payment of $70,000 to obtain an additional seven years tenure and that he felt he had no alternative but to agree, because without the additional tenure the Business would be virtually worthless. Mr Cockram's diary note of 1 April 1997 confirms this evidence. 45 I think that the third meeting took place on or about 4 April 1997 and not on 10 April 1997 which Mr Ranaldi thought was the date of that meeting. I find that at that meeting Mr Ranaldi told the individual respondents that he could pay $50,000 by a lump sum and the balance of $20,000 by instalments and the individual respondents accepted those terms of payment. This is consistent with Mr Gentilli's letter of 11 April 1997 [Exhibit A10] which starts with the following paragraph: "I refer to our telephone conversation on 4 April 1997 when you advised that you had reached agreement with Mr Ranaldi that he would pay you $50,000 on 1 July 1997 and a further $2,000 on the 1st of each month thereafter for ten months if you would agree to waive the lateness of his notice of exercise of option." 46 I think that it is more probable than not that during the course of that telephone conversation of 4 April 1997 Mr Gentilli informed Mr Salvtore Parasiliti that there was likely to be a key money problem and that Mr Salvtore Parasiliti had asked Mr Gentilli to research the matter and see if he could find a way whereby the transaction could be effected lawfully. In his letter of 11 April 1997 Mr Gentilli proposed "a scheme" to "attempt to get around the [State Act]". Some reasonably short period after that (Mr Ranaldi said it was on or around 21 April 1997, but it is not necessary to fix the precise date), Mr Salvatore Parasiliti told Mr Ranaldi how the new term of lease was to be provided to Executive Bloodstock. The scheme proposed by Mr Gentilli was precisely that which the respondents caused to be carried out i.e. the grant of a seven year lease to the first respondent and an assignment to Executive Bloodstock of that lease upon an immediate payment of $50,000 and a further $20,000 over ten months.

THE STATUTORY PROHIBITION 47 Section 51AA of the Act provides as follows: "(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." 48 It was common ground that s 51AA(1) is directed at conduct that is unconscionable within the equitable concept of unconscionable conduct. I respectfully agree with French J's conclusion in that regard in Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd (No 2) (1999) 96 FCR 491 at 495.

CONSTITUTIONAL VALIDITY 49 I also agree with French J's conclusion in Berbatis (No 2) that s 51AA of the Act is a valid exercise of the Constitutional power of the Commonwealth. I agree generally with his Honour's reasoning. 50 Parliament has decided to impose a norm of commercial behaviour by prohibiting a corporation from engaging in conduct of a type in relation to which a judge, exercising jurisdiction in Equity, would grant relief under the principles of unconscionability. 51 The prohibition is imposed directly by s 51AA by reference to principles which are not applicable peculiarly to Constitutional corporations. In my opinion, any evolution, by judicial decisions, of the equitable principles of unconscionability will not sufficiently directly impose a behavioural norm on Constitutional corporations for that process to be characterised properly as legislation.

WAS THE FIRST RESPONDENT A TRADING CORPORATION? 52 In paragraph 2(c) of its statement of claim the applicant pleaded that the first respondent is and was at all material times a trading corporation within the meaning given to that term by the Act. In paragraph 2 of the defence the respondents denied paragraph 2(c) of the statement of claim. 53 No evidence was led on this point and no submissions were made by the respondents to the effect that the application should be dismissed on the ground that the Act did not apply to the first respondent. 54 I have inferred that the respondents abandoned the point.

DID THE FIRST RESPONDENT ENGAGE IN CONDUCT THAT WAS UNCONSCIONABLE?

55 The applicant's case was that Executive Bloodstock and Mr and Mrs Ranaldi were in a situation of special disadvantage compared with the first respondent and that the latter had exploited that special disadvantage by conduct which, according to equitable principles, was unconscionable.

56 The particular conduct of the first respondent which the applicant identified in its statement of claim as being unconscionable was the imposition of what was termed "the First Condition" and/or "the Second Condition" - see paragraph 40 of the statement of claim. The First Condition was described in paragraph 29 of the statement of claim as one that was imposed by the second to seventh respondents on or about 31 March 1997 to the effect that Executive Bloodstock would have to pay the sum of $70,000 if those respondents, as lessors, were to grant the extended seven year term for the Premises under the Option. 57 The Second Condition (see paragraph 35 of the statement of claim) was the requirement in the assignment of lease from the first respondent to Executive Bloodstock that the latter should pay to the first respondent the sum of $70,000, as to $50,000 on 2 June 1997 and the balance by ten equal monthly instalments from 3 July 1997. 58 In paragraph 17 of their defence the respondents stated that the conduct described in paragraphs 25 to 35 of the statement of claim was not conduct of the first respondent. 59 Again, this issue was not the subject of submissions. There might be thought to be some conceptual difficulty with conduct engaged in on or about 31 March 1997 (imposition of the First Condition) being attributed to the first respondent when it was only at some time after 11 April 2000 that it was decided by the respondents to involve the first respondent in the arrangement to give effect to the settlement of the disputes between the individual respondents on the one hand and Executive Bloodstock on the other hand. At the earlier stage, the principals in the transaction on the respondents' side would appear to have been only the individual respondents. The relief claimed in the application against the individual respondents is not for conduct in which they themselves engaged as principals in contravention of the Act. Rather the claims made against them are, as I have mentioned above, on the basis that they were directly or indirectly knowingly concerned in or party to the conduct of the first respondent. 60 At trial the case was fought on the basis that the conduct of the male respondents (certainly that of Messrs Salvatore Parasiliti and Francesco Parasiliti, probably on behalf of all of the individual respondents) was also to be treated as being for and on behalf of the first respondent. That is, the parties were content for the case to be fought on the basis that the first respondent had adopted, as its conduct, the previous conduct of the individual respondents in imposing the First Condition. Then those of the respondents who controlled the first respondent caused it to impose the Second Condition. It seems to me that the parties, in taking that approach to the matter, applied a sensible and practical characterisation of what actually took place. I shall work on the same basis.

WERE EXECUTIVE BLOODSTOCK AND/OR MR & MRS RANALDI IN A SITUATION OF SPECIAL DISADVANTAGE COMPARED WITH THE FIRST RESPONDENT?

61 The classes of special disability are not closed. In Blomley v Ryan (1956) 99 CLR 362 at 405 Fullagar J, in a frequently cited passage of his reasons, said this:

"The circumstances adversely affecting a party, which may induce a court of equity either to refuse its aid or to set a transaction aside, are of great variety and can hardly be satisfactorily classified. Among them are poverty or a need of any kind, sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy or lack of education, lack of assistance or explanation where assistance or explanation is necessary."

62 The applicant relied on several factors to establish that Executive Bloodstock and Mr and Mrs Ranaldi were in a situation of special disadvantage. They were pleaded in paragraph 38 of the statement of claim. In my opinion the evidence to a large extent establishes each of those factors. I shall deal with them in sequence. Some of the factors were repetitive, so I deal only with five of the seven particulars set out in paragraph 38. They were as follows:

(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 & Mrs Ranaldi.

63 My assessment of the financing arrangements is that they resulted in the purchase of the Business being a heavily-geared transaction. First, Mr and Mrs Ranaldi discharged an existing first mortgage to Town and Country Bank Ltd under which about $102,000 was owing at the time. They then re-mortgaged their home to Home Building Society to secure a loan of about $257,000, of which $102,000 was applied in discharging the previous mortgage with the balance of approximately $155,000 being applied towards the purchase price for the Business. The sum owing to Home Building Society represented over 75% of the then value of their home. Executive Bloodstock borrowed a further amount of $45,000 for that purpose from Elderslie Finance Corporation Ltd. That loan was for a period of 5 years and was secured by a registered second mortgage over Mr and Mrs Ranaldi's home, a charge over the assets of the Business and a chattel mortgage over Mr Ranaldi's Fairmont Ghia motor vehicle which was valued at $12,000. I think that it is a fair description of the situation to describe Mr and Mrs Ranaldi and their company Executive Bloodstock as having mortgaged themselves "to the hilt" to purchase the Business.

(b) Mr and Mrs Ranaldi's overall financial security their ability to pay the above-mentioned loans and their livelihood depended on income derived from the conduct of the Business or alternatively from the sale of the Business.

64 The unchallenged evidence was that Executive Bloodstock and Mr and Mrs Ranaldi had, at the relevant time, ceased trading in horses and the Business was their sole source of income, and I so find. I accept that they were dependent upon either the income of the Business or its sale for their financial security and their livelihood to a very substantial extent, but not totally. As I mention below, if Executive Bloodstock had lost the Business and Mr and Mrs Ranaldi had to sell up to repay the loans, they would still have had assets in excess of $100,000. The evidence is that after Executive Bloodstock sold the Business in June 1998, Mr Ranaldi resumed his occupation (probably through Executive Bloodstock, the evidence is not clear) of trading in horses.

65 This was common ground. That date was about three months from the time when the relevant events took place.

(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. 66 Mr Ranaldi's evidence to that effect was not challenged. Furthermore, in the agreed bundle of documents [Exhibit A1 p 275] there was a fairly favourable valuation, dated 24 January 1997, from Financial and Commercial Services Pty Ltd, Business Consultants & Valuers, in relation to the business. The final paragraph of that document, which was prepared by Mr R L Todd, Licensed Valuer, was: "The purchase price of $195,000 plus stock is considered to be fair and reasonable subject to the business having an adequate lease term." In my opinion, the evidence establishes this factor. (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. 67 There was uncontradicted evidence to this effect and I accept it.

68 I have considered the financial consequences to Executive Bloodstock and Mr and Mrs Ranaldi if Executive Bloodstock had been forced to surrender possession of the Premises on 2 June 1997. This was obviously a matter of very great concern to them when Executive Bloodstock agreed to pay the respondents the sum of $70,000 demanded by them and when Mr Ranaldi took the steps necessary to raise $50,000 of that sum through arranging a mortgage of his elderly parents' residential unit.

69 Mr Todd's assessment was that it was fair and reasonable to value the plant of the Business at $50,000. But that was probably a valuation in situ. Even assuming that Executive Bloodstock would have been able to realise $50,000 from the sale of the plant and recover some $10,000 from sale of the stock, there would still be about $140,000 owing to the financiers who advanced the money for the purchase price. Such evidence as there was of Executive Bloodstock's net asset position (as it would have been on 2 June 1997) suggests that it had minimal net assets and that the loans raised to purchase the Business would need to have been repaid out of the resources of Mr and Mrs Ranaldi. To discharge those financial obligations, the evidence shows that Mr and Mrs Ranaldi would have had to sell their home and Mr Ranaldi might well have had to sell his car. I do not think that the consequences would have included the bankruptcy of Mr and Mrs Ranaldi. The evidence suggests that if they had realised $60,000 for the plant and stock and, say, $10,000 for Mr Ranaldi's car and $340,000 for their home, they would have well in excess of $100,000 in net assets. Their financial statement as at 29 November 1996 [Attachment FMR5 to Exhibit A2] showed that they then had $20,000 in cash on hand or at bank and owned $30,000 worth of furniture. Nonetheless they were faced, within a very short time of acquiring the Business, with a loss of an amount in the vicinity of $145,000, being the price which they had paid for the goodwill of the Business.

70 I have given consideration to that part of Mason J's perception of special disadvantage which requires the circumstance to be one which seriously affects the ability of the innocent party to make a judgment as to his own best interests - see Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 at 462. That in turn was based upon Blomley v Ryan - see for example McTiernan J at 392 describing the essence of the relevant weakness justifying the interference of Equity as being that "… the party is unable to judge for himself". But those cases fell into a different category of special disadvantage. The authorities do not require that in every case of special disadvantage the wronged party be rendered substantially or completely unable to make a judgment as to his or her own best interests. 71 Mason J had, in Amadio at 461, acknowledged this when noting the resemblances and differences between unconscionable conduct ("the former" in the quote below) and undue influence, by observing: "In the former the will of the innocent party, even if independent and voluntary, is the result of the disadvantageous position in which he is placed and of the other party unconscientiously taking advantage of that position."

72 In the present case it could be said, justifiably, that Mr Ranaldi was well capable of making a judgment about the best interests of Executive Bloodstock and those of him and his wife. I refer to Mr Ranaldi's commercial experience described in paragraph 90 below. He would have known that it was in their best interests to preserve the value of the Business by making the payment of $70,000. But, in my view, 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".

73 In my view, the applicant has proved that Executive Bloodstock and Mr and Mrs Ranaldi were in a situation of special disadvantage, but there were some ameliorative aspects of their situation which were of a kind not usually encountered in cases where a special disadvantage is found to exist. I refer to those matters below when making an overall assessment of the respondents' conduct.

THE STATE OF THE RESPONDENTS' KNOWLEDGE 74 I accept the applicants' plea that the respondents knew of what was termed "the Ranaldis' Special Disadvantage". The term included the special disadvantage of Executive Bloodstock. 75 In my view, the respondents' knowledge arose, as the applicant claimed, through their close examination of the financial positions of Executive Bloodstock and Mr and Mrs Ranaldi when they considered the application for approval to the assignment of the Lease to Executive Bloodstock. Mr Gentilli, in his letter dated 13 February 1997 to the business agent said that the respondents had taken advice not only from him but from their accountants and bank manager in relation to the financial information provided on behalf of Executive Bloodstock. He recorded his clients' understanding that Executive Bloodstock had agreed to pay $195,000 plus the value of stock for the Business and that from the statement of affairs provided, it appeared that almost the whole of that would have to be borrowed. He said that his clients were concerned that Executive Bloodstock and Mr and Mrs Ranaldi might not be sufficiently financially sound to operate the Business in the long term, and sought further information. They received that further information. 76 In my view, the respondents had a particularly good appreciation of all of the main circumstances which gave rise to the Ranaldis' Special Disadvantage. 77 The respondents had a sufficiently detailed knowledge of the financial affairs of Mr and Mrs Ranaldi and Executive Bloodstock to be fixed with notice that if Executive Bloodstock did not obtain an extension of the term of the Lease it would lose about $145,000 (being the value of the goodwill of the Business) and that Mr and Mrs Ranaldi would probably have to sell their home. In short, the respondents knew that they were in a position of special disadvantage. 78 The next question is whether, in all the circumstances, by extracting the $70,000 from Executive Bloodstock as a condition of providing it with a seven year leasehold term, the first respondent engaged in conduct which was unconscionable. 79 It is useful to have regard to the genesis of the equitable principles of unconscionable conduct. That can be traced back to cases involving "catching bargains with expectants", e.g. Earl of Chesterfield v Janssen (1751) 2 Ves Sen 125 [28 ER 82]; Earl of Aylesford v Morris (1873) LR 8 Ch App 484 and the characterisation of such conduct as constituting an equitable fraud. 80 In Earl of Chesterfield v Janssen the Lord Chancellor assembled a bench which included two Chief Justices, the Master of the Rolls and another judge to hear a case in which an injunction was sought to prevent execution on a judgment. The judgment had been entered, by a form of default, in favour of a moneylender who had procured a bond for the repayment of an advance and a penalty of 100%. The advance had originally been made to John Spencer in expectation of his inheritance of a very large fortune from his grandmother, the Duchess of Marlborough. In the result, the Court granted limited relief due to Mr Spencer's conduct when he, in effect, "rolled over" the bond after he had inherited his grandmother's fortune, and for other like reasons. The Lord Chancellor, referring to various types of fraud, at 156 [100] described one fraud recognised in courts of equity in these terms: "… it is wisely established in this court to prevent taking surreptitious advantage of the weakness or necessity of another: which knowingly to do so is equally against the conscience as to take advantage of his ignorance: a person is equally unable to judge for himself in one as the other." 81 In Earl of Aylesford v Morris, Lord Selborne explained, at 490-491, that fraud did not mean deceit or circumvention; it meant an unconscientious use of power. 82 The characterisation of unconscionability as a species of equitable fraud can be seen in more modern times in, for example, the reasons for judgment of McTiernan J in Blomley v Ryan at 385, and those of Mahoney JA in Antonovic v Walker (1986) 7 NSWLR 151 at 163. 83 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. 84 Some useful guidance on this aspect can be obtained from the following passage in Deane J's reasons for judgment in The Commonwealth v Verwayen (1990) 170 CLR 394 at 441: "In this as in other areas of equity-related doctrine, conduct which is "unconscionable" will commonly involve the use of or insistence upon legal entitlement to take advantage of another's special vulnerability or misadventure (cf. Stern v McArthur (1988) 165 CLR 489 at pp 526-527) in a way that is unreasonable and oppressive to an extent that affronts ordinary minimum standards of fair dealing. That being so, the question whether conduct is or is not unconscionable in the circumstances of a particular case involves a "real process of consideration and judgment" (cf. Harry v Kreutziger (1978) 95 DLR (ed) 231 at p 240) in which the ordinary processes of legal reasoning by induction and deduction from settled rules and decided cases are applicable but are likely to be inadequate to exclude an element of value judgment in a borderline case such as the present." 85 In Harry v Kreutziger at 241, Lambert J referred to the "single question" as being: "… whether the transaction, seen as a whole, is sufficiently divergent from community standards of commercial morality that it should be rescinded." 86 Bryson J in Burt v Australia and New Zealand Banking Group Ltd (1994) ATPR (Digest) 46-123 may, in my respectful opinion, have set the bar a little too high (from the viewpoint of an applicant for relief) when he said (at 53,598): "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." but his Honour's observation confirms that unconscionability is towards the extreme end of the scale to which I have referred above (in paragraph 83). 87 As the learned authors of the chapter entitled "Unconscionable Dealing" in "The Laws of Australia" observe at paragraph 11, whether particular conduct constitutes unconscionable dealing will be largely a matter of opinion. See also French J to like effect in Berbatis (No 2) at paragraph 124. 88 In my view, the question 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 being relevant to the issue of special disadvantage. When considering the application of the equitable principles of unconscionability, the question is whether equity would restrain or otherwise grant relief against the particular conduct. That must involve looking at all of the circumstances, whether they fall into one category or another. 89 I agree, respectfully, with the observation of French J in Australian Competition and Consumer Commission v Berbatis Holdings Pty Ltd [2000] FCA 1376 at paragraph 118-119 that it is conduct in context which has to be judged, and that the context includes matters which bear on the question of the degree of special disability. 90 In this case, those matters included the fact that for many years Mr Ranaldi had been a businessman. He started his working career at "Goodyear", the tyre and rubber company, in Western Australia. His evidence was that his career with that company advanced to the stage where he had been a branch or sales manager of that business at branches in various Perth suburbs. He then went into business, in partnership with his wife, conducting two retail shops selling casual wear. He ran those businesses, which were located in shopping centres, virtually on his own, attending to all aspects of the businesses. At about the same time he established Executive Bloodstock (initially on a part-time basis) which became involved in harness racing and exporting horses to the United States. Again at the same time (in the 1980s) Mr Ranaldi worked as a sales representative for two firms of real estate agents. Then his work for Executive Bloodstock became a full-time occupation. He spent 15 years so engaged, partly based in the United States of America. My assessment of Mr Ranaldi was that he was reasonably well-versed in commercial matters. Furthermore, at the relevant time (from 21 March 1997 to the end of April 1997) Mr Ranaldi had legal advice from Mr Cockram. The respondents knew that. I regard all of these factors as being relevant not only in assessing the degree of special disability, but also to the question whether the respondents' conduct was, in all the circumstances, unconscionable. 91 I accept the evidence of the male respondents that they had very little formal education. But they were successful businessmen, and they well understood, having obtained legal advice, that they were in a strong position. 92 It should be remembered, though, that the respondents had been advised by Mr Gentilli that if they insisted upon taking vacant possession of the Premises at the expiration of the then current term, they might be exposed to expensive litigation. The individual respondents had had a taste of that some months previously when Mr and Mrs Farruggio took them to the Commercial Tenancy Tribunal. I accept Mr Ranaldi's evidence (which was the subject of a fairly contemporaneous record by Mr Cockram) that the individual respondents in March 1997 expressed their displeasure at having been involved in that earlier litigation. 93 The applicant relied to some extent on the fact that the respondents adopted the device of substituting the first respondent for them as a "statutory vehicle to overcome the unlawful conduct in the imposition" of the requirement to pay $70,000. That is, they took measures to defeat the object of the State Act which was designed to protect tenants from what the applicant described as "this form of predatory conduct". I accept that this is a relevant factor i.e. that initially the respondents made an agreement which was illegal under the State Act. They re-structured the arrangement in a manner which suited their purposes, but the extraction of the $70,000 payment was the sort of mischief which the State Act was intended to prohibit. The circumstance that the scheme was probably not in contravention of the State Act does not, in my view, preclude the Court from having regard to its character as a device to achieve legally what they had previously bargained to obtain illegally. I take this factor into account as a matter weighing against the respondents, but in my opinion, it does not sufficiently tip the scales on the question of unconscionability. 94 I think it is fair to assess the context in which the parties reached their agreement as one in which each side had legal advice and each side knew that both the individual respondents and the first respondent (by being in a position to have granted to it the leasehold term which would have been granted to Executive Bloodstock if it had exercised the Option), were in a far stronger position legally than Executive Bloodstock. However, the parties were minded to reach a negotiated settlement of their disputes. The respondents so I infer, were minded to extract the maximum cash benefit obtainable as part of the terms of settlement. 95 Another factor which I take into account is, as the respondents contended, the fact that it was Mr Ranaldi's neglect to exercise the Option which brought about the situation. The authorities establish that it is not essential, in order to find a situation of special disadvantage, that it be brought about by the party said to have acted unconscionably. But, conversely, in my view, it is relevant that Mr Ranaldi, an experienced businessman, failed to attend to this aspect of the Business. He admitted that he had been told by Mr Dalziell, before settlement, about the need to exercise the Option. Mrs Farruggio had, at much the same time, advised Mr Ranaldi to make sure he advised the Lessors of his intention to exercise the Option. Mr Ranaldi admitted in cross-examination that he had read clause 22 of the Lease and had worked out that the Option had to be exercised by 2 March 1997. 96 I think that there is also some weight in the respondents' submission that it may well have been open to them simply to resume possession at the end of the then current term. In its written submissions the applicant 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 other conduct. The bargain which Mr Ranaldi struck on behalf of Executive Bloodstock enabled the former situation to be retrieved. It enabled Executive Bloodstock to generate a profit of in excess of $100,000 during the period of nearly 12 months ended in June 1998. It also enabled Executive Bloodstock to sell the Business at the end of that period for $180,000. I infer that both sides to the compromise would have been aware of these likely financial advantages when they made the settlement arrangements. 97 Mr Ranaldi must be taken to have calculated that it was in his business interests to pay the first respondent $70,000 to regain the financial position which Executive Bloodstock had lost by his omission. He had made what could have been a very expensive mistake, whereby Executive Bloodstock could have lost about $145,000 (the value of the goodwill of the Business) and he and his wife could have lost their home. He struck a commercial settlement. 98 The individual respondents can be seen to have done the same. They chose to forego what was, in all probability, their right to retake possession at the expiration of the term of the Lease, but it was a right which, if exercised, looked to them as though it would involve further expensive litigation. Had they persisted in that course and had been successful in that litigation they would have been about $145,000 richer. Instead they settled the dispute for slightly under half that sum. The result was that Mr Ranaldi had made a $70,000 mistake instead of a $145,000 mistake. 99 It might well be thought that the respondents adopted an avaricious, opportunistic approach and struck a very hard bargain. But, in my opinion, their conduct fell short, though not far short, of being the sort of conduct which Equity would regard as unconscionable.

CONCLUSION 100 For the foregoing reasons the application against the first to seventh respondents will be dismissed with costs. Footnote An option to obtain a further grant of a lease is often a very valuable asset. It certainly was in this case. Failure to exercise such an option within a stipulated time has the result in law that this asset dissolves into nothing. Where a business has been conducted on the leasehold premises, much of the goodwill of that business may pass to the lessor, even though the option may have been purportedly exercised only slightly out of time and the lessor can show no prejudice. The situation is analogous to one of forfeiture. Relief against forefeiture is granted in Equity, generally speaking, where there has been unconscionable conduct. There have been statutory modifications in that area. On the authorities to date, Equity has not extended the principles of relief against forfeiture to circumstances such as the situation in which Executive Bloodstock found itself in this matter. There seems to be a good case for either the State or Commonwealth legislature to consider a statutory adjustment of the law so that a careless omission to exercise an option to extend the term of a lease should not result in such grave circumstances for a lessee and such an unearned windfall for a lessor. The legislative adjustment need not be complicated. It might simply require a lessor to serve on the lessee a notice referring to the fact that no notice of exercise of the option has been served and that it proposes to resume possession of the premises at the expiry of the current term of the lease unless the lessee within, say, fourteen days, indicates in writing that it exercises the option which the statutory amendment would have to revive. The statutory revival of the option might be for a period commencing with its expiry under the terms of the lease and ending with the period stipulated in the lessor's notice. Any reasonable expenses incurred by the lessor in relation to the giving of such notice might be borne by the lessee whether or not it exercises the extended option to renew. Any such amendments would fit quite neatly into Division 2 of Part VII of the Property Law Act 1969 (W.A.).

I certify that the preceding one hundred (100) numbered paragraphs are a true copy of the Reasons for Judgment of Justice Carr.

Associate: Dated: 29 November 2000 Counsel for the Applicant: Mr N W McKerracher QC, with him Mr T J Carey

Solicitor for the Applicant: Australian Government Solicitor

Counsel for the first to seventh respondents: Mr P G McGowan

Solicitor for the first to seventh respondents: Metaxas & Vernon

Date of Hearing: 13-15 November 2000

Date of Judgment: 29 November 2000