The Administrative Decisions Tribunal (Retail Leases Division) has recently handed down its decision in Putri Kenanga Pty Ltd v Pham. The case involved a claim by the lessee that the lessor, via its agents, had engaged in unconscionable conduct under the Retail Leases Act (NSW).

The lessee, Mr Japardi, leased premises from the lessor from which he ran an Indonesian restaurant. His wife, Ms Lie, was the chef, but was not a party to the lease. The unconscionable conduct claim related to a series of visits by the landlord’s leasing agents to the restaurant during which the agent forcefully demanded that the lessee pay outstanding rent owed to the lessor.

Section 62B of the Retail Leases Act, regarding unconscionability provides as follows:

“Unconscionable Conduct in Retail Shop

Lease Transactions

  1. A lessor must not, in connection with a retail shop lease, engage in conduct that is, in all the circumstances, unconscionable …

 

  1. Without in any way limiting the matters to which the Tribunal may have regard to the purpose of determining whether a lessor has contravened subsection (1) in connection with a retail shop lease, the Tribunal may have regard to:
  1. the relative strengths of the bargaining positions of the lessor and the lessee, and
  2. whether, as a result of conduct engaged in by the lessor, the lessee was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the lessor, and
  1. whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the lessee or a person acting on behalf of the lessee by the lessor or a person acting on behalf of the lessor in relation to the lease, and
  1. the requirements of any applicable industry code, and
  1. the extent to which the lessor unreasonable failed to disclose to the lessee:
  1. any intended conduct of the lessor that might affect the interests of the lessee, and
  2. any risks to the less arising from the lessor’s intended conduct (being risks that the lessor should have foreseen would not be apparent to the lessee), and

 

 

  1. the extent to which the lessor and the lessee acted in good faith.” The leading authority on unconscionable conduct in the context of retail leases is the judgment of Chief Justice Spigelman in Attorney General of New South Wales v World Best Holdings Limited:

“120. Unconscionability is a well-established but narrow principle in equitable doctrine. It has been applied over the centuries with considerable restraint and in a manner which is consistent with the maintenance of the basic principles of freedom of contract. It is not a principle of what “fairness” or “justice” or “good conscience” require in the particular circumstances of the case …

121.The Ministerial Second Reading Speech indicates a similar concern to distinguish what is unconscionable from what is merely unfair or unjust. Even if the concept of unconscionability in section 62B of the Retail Leases Act is not confined by equitable doctrine, as the decisions under section 51AC of the Trade Practices Act suggest, restraint in decision-making remains appropriate. Unconscionability is a concept which requires a high degree of moral obloquy. If it were to be applied as if it were equivalent to what is “fair” or “just”, it could transform commercial relationships in a manner which the Minister stated was not the intention of the legislation. The principal of “unconscionability” would not be a doctrine of occasional application, when the circumstances are highly unethical, it would be transferred into the first and easiest port of call when any dispute about a retail lease arises.”

The Tribunal noted in this case that the lessor’s agents were relevantly bound by a code of conduct under the NSW Real Estate Agents’ Rules of Conduct promulgated by the Department of Fair Trading. Those rules relevantly provide that an estate agent must act honestly, fairly and professionally with all parties in the transaction, and must not mislead or deceive any party in a negotiation or a transaction [Rule 3] and require agents to exercise reasonable skill, care and diligence [Rule 4]. Rule 5 relevantly states “an agent must not engage in high pressure tactics, harassment or harsh or unconscionable conduct”.

The relevant conduct involved:

  • a series of visits by the agents to the restaurant during which the agents loudly demanded payment of outstanding rent, in the presence of the restaurant’s customers
  • the lessor, via its agents, demanding rent, the calculation of which was inaccurate and overstated
  • the agents behaving in an aggressive and intimidating manner during their visits to the restaurant such that the Tribunal concluded that their conduct amounted to harassment and high pressure tactics
  • upon their eviction, the agents required the lessee and Ms Lie to vacate the premises within a very short period of time (between one and two hours) without any apparent justification.

The Tribunal accepted the claims by Mr Japardi and Ms Lie that the behaviour of the lessor’s real estate agents during certain visits to the premises to demand rent was aggressive and intimidating, and that the agents exerted unwarrantable emotional pressure on Ms Lie in particular n circumstances where they knew or should have realised that Ms Lie was particularly susceptible to such pressure. Such conduct in the Tribunal’s opinion amounted to “high pressure tactics” and “harassment” as described by the code of conduct.

The Tribunal then turned to the question of whether the lessee suffered any loss as a result of the unconscionable conduct of the lessor’s agent. The Tribunal found that there was no link between the breach permitted by the lessor’s agent and the claim for loss and damage made by the lessee, which ran to over $200,000.00. The Tribunal concluded that if demands for payment of arrears had been communicated in an appropriate manner, without aggression and intimidating behaviour, nothing in the evidence suggested that anything different would have occurred. The only claim that the lessee was able to sustain was a claim that the lessor had impermissibly turned off the lessee’s fridge after re-entry, thereby spoiling a quantity of perishable food in the refrigerator. The Tribunal therefore awarded the lessee damages of $2,916.00 in respect of the unconscionable conduct claim, representing the value of the food that was destroyed, plus interest.

The case is a reminder to lessors that they can be held responsible for the conduct of their agents, especially where those agents have used high pressure tactics to achieve the landlord’s objectives. The case is also a reminder for those making unconscionable conduct claims that in order to make good a claim for damages it is important to establish a clear link between the conduct complained of, and the loss allegedly suffered.