One of the Federal Court decisions regarding the application of Section 51(AA) of the Trade Practices Act - Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd - was recently overturned on appeal to the Full Court of the Federal Court of Australia. At first instance, a single judge of the Federal Court ruled that the landlord had unconscionably exploited the tenant's disadvantage by imposing a condition on the renewal of a lease that the tenant abandon genuine legal proceedings against the landlord. The judge ruled that the tenant's special disadvantage was due to the fact that the tenant's financial security depended on the sale of the business and the sale would only be viable with a new or extended lease. The question on appeal was whether the circumstances of the tenant were such that a conclusion of 'special disadvantage' within the meaning of the relevant equitable principles should be drawn.

The Full Court held that neither of the two separate factors of the tenant's special disadvantage could be justified in attracting the intervention of equity. It is inappropriate to deem a tenant as being under a special disadvantage due to the imminent expiration of a lease. The court reasoned that a very real possibility exists of greater detriment to the tenant by loss of the opportunity to extend or renew a lease than in abandoning claims against the landlord. The decision to abandon the legal proceedings against the landlord was voluntary and independent, and made with proper legal advice. The court held that while the tenant was faced with a hard bargain, it was not unconscionable giving rise to a contravention of Section 51 (AA).

For further information on this topic please contact Katerina Petrogiannakis or Toby Mittelman at Arnold Bloch Leibler by telephone (+61 3 9229 9779) or by fax (+61 3 9229 9889) or by e-mail ([email protected] or [email protected]).

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