Misleading and deceptive and unconscionable conduct in retail leases - Legalwise Seminars

Barrister Jane Gregory discusses Misleading and Deceptive and Unconscionable Conduct in Retail Leases. Given the meaning of misleading or deceptive conduct under s 18 of the Australian Consumer Law is reasonably settled, Jane discusses a related section which can confer strategic advantages on a plaintiff. She recently presented on this topic at the Legalwise Retail and Commercial Leasing Conference in Victoria. 

Given the meaning of misleading or deceptive conduct under s 18 of the Australian Consumer Law is reasonably settled, this article will focus on a related section which can confer strategic advantages on a plaintiff. In contrast to s 18, the meaning of statutory unconscionability is less clear. The key principles are discussed below together with some applications from leasing cases.

Misleading or deceptive conduct

The types of conduct which might fall under s 18 are not limited to representations. However, representations are typically pleaded as the impugned conduct.

Representations can be statements about present facts or future matters. Examples of representations regarding future matters include predictions and promises (whether contractual or not). In the leasing context, some specific examples include:

• • a representation as to how much a tenant would have to pay for operating costs under a lease of a unit in a retirement village;
  • a representation that when a shopping centre opened all shops would be let and open for business;
  • a representation that a tenant would be the sole retailer of a specific category of goods in a shopping centre; and
  • a representation that a landlord would make good the surface of premises after it excavated the land.

The distinction between representations regarding present facts and future matters is important. Where the representation relates to a future event, s 4 of the Australian Consumer Law shifts part of the evidential burden onto the defendant. More specifically, if the defendant does not adduce some evidence of reasonable grounds for making the representation, the representation will be taken to be misleading.

In some cases there may be more than one way to frame the relevant representation, for example, there might be multiple express and implied representations available and the plaintiff needs to decide which representation(s) it will plead. Section 4 may be particularly useful where it is perceived that the defendant has limited evidence of reasonable grounds or where there are concerns about the strength of the plaintiff’s evidence as to whether the representation was misleading.

Statutory unconscionability

Statutory unconscionability is different to the equitable doctrine of unconscionable dealing. Put simply, unconscionable dealing requires proof that the plaintiff suffers from a special disadvantage and that the other party has exploited that special disadvantage. Establishing that a plaintiff has a special disadvantage can be difficult in commercial contexts. Conversely to equity, statutory unconscionability does not require proof of a special disadvantage which means the section has broader application.

The statutory unconscionability provisions that apply to retail leases are set out in Part 9 of the Retail Leases Act 2003 (Vic). If a lease is not retail in nature, then Part 2-2 of the Australian Consumer Law would be relevant. The word “unconscionable” is not defined in either statute. However, each statute contains a list of factors that may be considered when determining whether there has been unconscionable conduct. Those factors include the relative strengths of the parties’ bargaining positions, non-compliance with any applicable industry code and any failures to disclose relevant information.

In Director of Consumer Affairs v Scully (2013) 303 ALR 168, the Victorian Court of Appeal stated that a comprehensive definition of statutory unconscionability is undesirable. The Court also set out ten separate observations as to its meaning. What is apparent from the decision is that statutory unconscionability has a relatively high threshold. Conduct that is merely unfair or unreasonable will probably not meet that threshold. Neither is an imbalance of bargaining power sufficient. To engage the provision, conduct normally needs to be unethical in some way.

In the leasing context, examples of statutory unconscionability include:

• • a landlord who permitted the construction of kiosks in a shopping centre, portions of which it knew would prevent patrons from being able to see a particular store. The conduct was in breach of the landlord’s own guidelines governing the dimensions of kiosks and the landlord took no steps to enforce the guidelines which would have solved the problem. The affected tenant raised its concerns about the design of the kiosk at an early stage, and the landlord used its superior bargaining power to adopt an uncompromising position in its negotiations with the tenant; and
  • a landlord who failed to disclose during lease negotiations its intention to excavate petrol tanks underneath the surface of the leased premises, and who failed to honour later representations that it would make good the surface of the premises by removing the excavated tanks, filling the two holes and sealing the surface. The landlord also failed to reimburse the tenant despite assurances that it would.

Conclusion

In misleading or deceptive conduct cases, s 4 of the Australian Consumer Law can be useful for the purposes of drawing pleadings and to facilitate proof at trial. Pleading a future representation might also alter the dynamics of any negotiations between the parties once the defendant realises that it carries an evidential burden to show reasonable grounds for making the representation.

In relation to statutory unconscionability, parties should pause before pleading this cause of action. Although the provisions are framed in relatively broad terms, the case law indicates that the threshold is high.

Jane Gregory, barrister, practises in commercial and public law. She is particularly interested in competition and consumer law litigation and, since joining the Bar, has worked on commercial leasing litigation involving unconscionable conduct claims. Prior to coming to the Bar, Jane was a solicitor at Allens where she worked on a broad range of commercial disputes including ACCC litigation. Contact Jane at Jane.Gregory@vicbar.com.au or connect via LinkedIn.