BETWEEN : MEDIA ARTS GROUP PTY LTD (ACN 009 084 315)

CHANNEL 31 COMMUNITY EDUCATIONAL TELEVISION LTD (ACN 081 520 158)

Pleading - Unconscionable conduct - Conspiracy to do a lawful act by unlawful means

Trade Practices Act 1974 (Clth), s 51AA, s 51AC

Adsteam Building Industries Pty Ltd v Queensland Cement & Lime Co Ltd (No 4) [1985] 1 QdR 127

Bond Corporation Pty Ltd v Thiess Contractors Pty Ltd [1987] FCA 84; (1987) 14 FCR 215

Bruce v Odhams Press Ltd (1936) 1 KB 697

Capra Group Pty Ltd v Janbrett Consultants Pty Ltd [1994] FCA 920; (1994) ATPR 41-298

Dalgety Australia Ltd v Ruben, unreported; FCt SCt of WA; Library No 5485; 24 August 1984

Dey v Victorial Railways Commission (1948) 78 CLR 63

General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125

Gold Coast City Council v Pioneer Concrete (Qld) Pty Ltd & Ors (1998) 157 ALR 135

Grimson v O'Donnell, Federal Court, NSW District Registry, 19 March 1999, Branson

H 1976 Pty Ltd v Galli [1979] FCA 74; (1979) 40 FLR 242

Hurley v McDonald's Australia Ltd [1999] FCA 1728

Kimberley Downs Pty Ltd v Western Australia (1986), unreported; SCt of WA; Library No 6414; 25 August 1986

Murex Diagnostics Australia Pty Ltd v Chiron Corp [1995] FCA 1040; (1995) 128 ALR 525

Planet Securities Unit Trust v Dalrymple [1999] QSC 204

Pritchard v Racecage Pty Ltd (1996) 142 ALR 527

Rubenstein v Truth & Sportsmen Ltd [1960] VicRp 75; [1960] VR 473

Tri-Global (Aust) Pty Ltd et al v Colonial Mutual Life Assurance Society Ltd (1992) ATPR 41-174

1 MASTER BREDMEYER: The second defendant has applied by chamber summons dated 10 December 1999 to strike out the plaintiffs' statement of claim. The plaintiffs have applied by chamber summons dated 17 December 1999 for leave to amend their statement of claim in terms of a minute of amended statement of claim of 17 December 1999. I will treat this application as one to strike out parts of that minute.

2 The second defendant's major attack is on the plea of unconscionable conduct against the second defendant under s 51AA and s 51AC of the Trade Practices Act 1974 (Clth) found in par 15, par 16, par 17 and par 20 of the minute. Section 51AA reads:

"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".

3 The second defendant has referred me to a number of leading authorities on unconscionable conduct, including Blomley v Ryan [1956] HCA 81; (1956) 99 CLR 362 at 405 and 415, Commercial Bank of Australia v Amadio [1983] HCA 14; (1983) 151 CLR 447 at 474, Garcia v National Australia Bank [1998] HCA 48; (1998) 194 CLR 395 and Australian Competition & Consumer Commission v G G Berbatis Holdings Pty Ltd [2000] FCA 2. Relying on the three High Court cases cited, the second defendant says that the plaintiffs must plead that they were under a special disability or disadvantage in their dealings with the second defendant. That disability may arise because of, amongst other things, illness, ignorance, inexperience, impaired facilities, absence of proper explanation, or financial need. The second defendant says that in order to plead an arguable cause of action for inconscionable conduct the plaintiffs must plead the material facts which show the special disability or disadvantage.

4 The three High Court cases cited all involved unconscionable conduct by the defendant in the negotiation of a contract with the plaintiffs. In all three cases the plaintiffs were in a position of serious disadvantage vis-à-vis the defendant. In that kind of case the special disadvantage of the plaintiffs vis-à-vis the defendant needs to be pleaded. But unconscionable conduct as an equitable doctrine is not limited to conduct occurring in the formation of a contract. The case before me does not allege any unconscionable conduct by the second defendant in the formation of the contract, but rather in the termination of the contract.

5 French J, in Berbatis (supra) gives three examples of unconscionable conduct. The first is the one I have mentioned, unconscionable conduct by the defendant in the formation of the contract and Blomley, Amadio and Garcia are examples of that. A second example of unconscionable conduct is where it is as an aspect of equitable estoppel, eg Walton Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387. Mason CJ and Wilson J in that case at 404 said:

"Equity comes to the relief of such a plaintiff on the footing that it would be unconscionable conduct on the part of the other party to ignore the assumption".

The third example of unconscionable conduct is where it justifies relief from forfeiture and penalties. Legione v Hately [1983] HCA 11; (1983) 152 CLR 406 is an example of that. In that case the plaintiff was the purchaser of land under a contract of sale and had breached the contract and the vendor sought to rescind the contract. The plaintiff, despite his breach, was ready, willing and able to perform the contract. The High Court per Mason and Deane JJ at 449 said:

"The rule would then be expressed by saying that it is only in exceptional circumstances that specific performance will be granted at the instance of a purchaser who is in breach of an essential condition.

Whether the exceptional circumstances exist in a given case hinges on the existence of unconscionable conduct. It is impossible to define or describe exclusively all the situations which may give rise to unconscionable conduct on the part of a vendor in rescinding a contract for sale. Nonetheless, it may be said that where the conduct of the vendor, though not creating an estoppel or waiver, has effectively caused or contributed to the purchaser's breach of contract there is ground for exercising the jurisdiction to relieve. And if it also appears that the object of the rescission is not to safeguard the vendor from adverse circumstances which it may suffer as a result of the contract remaining on foot, but merely to take unconscientious advantage of the benefits which will fortuitously accrue to him on forfeiture of the purchaser's interest under the contract, there will be even stronger ground for the exercise of the jurisdiction."

6 A fourth example of unconscionable conduct is illustrated by Muschinski v Dodds [1985] HCA 78; (1986) 160 CLR 583. In that case the defendant did not engage in any unconscionable conduct prior to entering into the agreement with the plaintiff which resulted in the land being registered in their names as tenants in common in equal shares. The High Court held, in effect, that it was unconscionable of the defendant to insist on his legal rights and enjoy a beneficial half-interest in the property in the circumstances which had occurred. In that case the plaintiff contributed all the money for the purchase of the land and the defendant was to build the house. The land was placed in their joint names as I have stated. They were in a defacto relationship. Before the house could be built the parties separated and so the defendant had not performed his part of the agreement. At 620, Deane J said:

"[The doctrine] operates upon legal entitlement to prevent a person from asserting or exercising a legal right in circumstances where the particular assertion or exercise of it would constitute unconscionable conduct. ... Those circumstances can be more precisely defined by saying that the principle operates in a case where the substratum of a joint relationship or endeavour is removed without attributable blame and where the benefit of money or other property contributed by one party on the basis and for the purposes of the relationship or endeavour would otherwise be enjoyed by the other party in circumstances in which it was not specifically intended or specifically provided that that other party should so enjoy it. The content of the principle is that, in such a case, equity will not permit that other party to assert or retain the benefit of the relevant property to the extent that it would be unconscionable for him to do so ..."

7 I consider it is only the first of these four examples of unconscionable conduct which requires the plaintiffs to plead material facts to show that the plaintiffs were in a position of special disadvantage vis-à-vis the defendant. The plea of unconscionable conduct in the minute does not fit within any of the four examples given of this cause. Nevertheless, unconscionable conduct is not confined to those four categories and, as a doctrine, cannot be defined exhaustively. I would not like to stifle the possible development of the law in this case. I consider that the cause of action of unconscionable conduct under s 51AA pleaded in the minute is arguable.

8 The same facts are relied upon in the minute to support the plea of unconscionable conduct under s 51AC(1). Section 51AC, unlike s 51AA, is not confined to the meaning of unconscionable conduct as understood by the unwritten law, hence this section could be wider than the equitable doctrine of unconscionable conduct. This section deals, inter alia, with the supply or possible supply of goods or services to a person, in this case by the first plaintiff to the second defendant, and in acquiring those goods and services the defendant must not engage in conduct which is, in all the circumstances, unconscionable. In determining whether the acquirer engaged in unconscionable conduct or not, the court may have regard to various matters set out in subs (4), including:

"(a) the relative strengths of the bargaining positions of the acquirer and the small business supplier".

9 The second defendant says that the word "unconscionable" is not defined in the Act or in the cases and nor is it appropriate to define the word, but nevertheless, at the very least, the conduct must be unfair, see Zoneff & Anor v Elcom Credit Union Ltd (1990) ATPR 41-009; 41-058 (Full Court) per Hill J at 51, 158. I agree with that. The second defendant says, nevertheless, the relative strengths of the bargaining positions of the parties remain the crux of s 51AC and without a significant degree of inequality, it is clear that it is the intention of the section that there will be no unconscionability. I cannot agree with that. The relative strengths of the bargaining positions of the two parties is one of 11 matters in subs (4) (a non-exhaustive list) which the court "may" take into account. I therefore cannot conclude that it is an essential ingredient of this cause.

10 Another matter the court may take into account is s 4(b):

"Whether, as a result of conduct engaged in by the acquirer, the small business supplier was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the acquirer."

I consider that that factor is arguably relevant to the plea in this minute, that the second defendant (the acquirer) supported the first defendant's insistence on rehearsals and reviewing the quality of the performances at the rehearsals and on getting a wide-ranging indemnity from the first plaintiff - three matters which were outside the plaintiffs' contractual obligations - for commercial advantage viz to produce and broadcast its own TV show. To adopt the words of the High Court in Legione v Hately, in the passage quoted, it is arguable on this plea that the rescission was not done because of breaches of contract by the plaintiffs - but for unconscientious commercial advantage.

11 I consider the plea of causal connection between the unconscionable conduct pleaded and the plaintiffs' loss is pleaded adequately.

12 The second defendant's next attack is on the plea of conspiracy found in par 17 of the minute. The opening words of that plea read:

"Further and in the alternative, the first and second defendants and each of them conspired with each other to cause the first plaintiff economic harm by way of wrongful act in that the defendants conspired to ... "

13 There are two types of conspiracy. One is the agreement or combination between two or more persons to commit a lawful act, with the predominant purpose of injuring or damaging the plaintiff and the act is carried out and the purpose achieved. The second is an agreement or combination between two or more persons to commit an unlawful act with an intention to injure the plaintiff and the act is carried out and the intention achieved. Volume 33 "Laws of Australia" 33.8 Intentional Torts, par 80.

14 I consider that the plea in par 17 is of the second type. Paragraph 25.3 of the plea summarises this: "Conspiracy to cause the plaintiffs economic harm by way of wrongful means". The words used in 17 "to cause the first plaintiff economic harm by way of wrongful act" are alternate words to the more usual plea "by unlawful means". The unlawful means can be the commission of a crime or of a tort: see Bullen and Leake and Jacobs' "Precedents of Pleadings", 13th ed, p 220 (Bullen and Leake). The second defendant says the plea is defective for failing to set out the intention to injure the plaintiff. I consider that is implied in par 17. I note that Bullen and Leake's forms 157 and 158 for this form of conspiracy do not plead intention. The relevant words are:

"[The] individual defendants unlawfully conspired to injure the plaintiffs by unlawful means, namely by ..."

(I note that the form adds in brackets "unlawfully [conspired with the predominant purpose] to injure the plaintiffs ..." which I have omitted. The notes to the forms at 220 state that the words in brackets could be used by the pleader to give effect to Lord Diplock's view of this type of conspiracy in Lonhro v Shell Petroleum [1981] 2 All ER 456. However, the learned authors doubt the correctness of Lord Diplock's view and say that there were later conflicting decisions. Their doubts were affirmed in Lonhro v Fayed [1991] 3 All ER 303 where the House of Lords said that it was not part of this form of conspiracy to show that the predominant purpose was to injure the plaintiff.)

15 The second defendant's second objection to this plea is that the overt acts must evidence not just an agreement to commit an unlawful act but an agreement to commit the unlawful act with an intention to injure the plaintiffs. I agree with that statement of the law but conclude that it is not essential to spell out the intention in the plea. It can be implied. I note that the scope of the tort is the same in England as in Australia. Compare Bullen and Leake (supra) p 220 and the summary from "Laws of Australia" above. Yet in Bullen and Leake's forms 157 and 158, for this form of conspiracy, there is no plea of intention to injure the plaintiff either in the conspiracy (the agreement to harm) or in the overt acts. The plea on the latter is in the form:

"In pursuance of the said conspiracy the defendants did the following overt acts ... " (form 158)

"In pursuance of the said conspiracy the defendants did the following overt acts namely in breach of contract and/or fiduciary duty ..." (form 157).

16 The plea of the overt acts in par 17 does not follow this form. It would be better if it did. Nevertheless the references to par 4.2, par 15.4, par 15.5 and par 16 arguably justify the inference of conspiracy. Paragraph 15.4 refers to how the first defendant told the second defendant that the first plaintiff was an unacceptable producer of the programme, having failed to comply with various demands made upon it as a result of the first defendant's review of the rehearsals. Following this criticism, the second defendant was thereby induced to terminate the contract.

17 I consider the causal connection between the conspiracy and the loss or damage is pleaded adequately. Clearly, upon the termination of the contract, substantial damage was caused to the plaintiffs.

18 I consider the plea of conspiracy can stand. However, by way of obiter statement, I query why it is necessary. The first form of conspiracy is unique. It gives a cause of action because the acts were done by two or more persons which would not be a cause if only done by one person. Picketing a shop with a placard is an example. But the second form of action, which is the one pleaded here, relies on "unlawful acts" such as torts, breaches of contract and of fiduciary duties. It thus duplicates other causes of action and, in my view, unnecessarily so, simply adding to the length of the pleading and the costs of the action. The same point is made in "Laws of Australia" ibid at par 81 and in Ward v Lewis [1955] 1 WLR 9.

19 The second defendant seeks to strike out par 14.4 and par 14.5. They each state that no TV programme had been broadcast at the date of the notice of the termination of the contract. That is pleaded to show that the termination was wrongful and represented a repudiation of the contract. I agree that the two subparagraphs do not support that. It was a two-year contract. It was terminated after a few months. The fact that it was terminated prior to the broadcast of the first programme does not show the termination was unlawful. It was unlawful because the plaintiffs were not then in breach of any term of the agreement (par 14.3). I will strike out par 14.4 and par 14.5 without leave to replead.

20 I will hear the parties on the orders to be made and on costs.