4.

THE CONSCIENCE OF EQUITY

FIDUCIARY OBLIGATIONS Fiduciary obligations are imposed upon those who are placed within positions of trust and confidence, and the main purpose of the enforcement of these fiduciary obligations is to ensure that the position of trust in which the fiduciary is placed is not abused for personal gain. The law of fiduciary obligations rests in the exclusive jurisdiction of equity: o Remedies available include an account for profits, a constructive trust and recission and equitable compensation. Agent is used in the sense of a person who has the authority to bind the principal in legal relations
COMMON the Fiduciary Question: Answering PROBLEMS: 1. State the principlethe relevant principles Not identifying 2. Is there a fiduciarythe means If so, why? breach can occur Not identifying involved? by which a [NB: Question of fact 3 HP] Failing to do step Established category: o Trustee and beneficiary (HP) REMEMBER: Overlap exists between breach of fiduciary o Solicitor of confidence obligation and breach and client (HP) the remedies are similar o Directors and Company (HP) o Agent and Principal (HP) o Partners (HP) o Employee and Employer (HP) Novel case: the fiduciary undertakes or agrees to act on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interest of that other person in a legal or practical sense (HP) 3. HAS THE CONDUCT FALLEN IN THE SCOPE OF THE FIDCUAIRY OBLIGATION? Look at the facts and apply them 4. Has there been a breach? No Conflict Rule No Profit Rule [HP] 5. Remedies [Warmen]? Account of Profits o Allowance may be made for the contribution of the fiduciary: Ask whether the breach was innocent Restoration of Property

Boardman v Phipps [1967] Facts: the case was bought by beneficiaries of a trust against Boardman, the solicitor to the trust and another beneficiary, Tom Phipps. The trust held a significant parcel of shares in the company, and, in the course of acting as agents of the trust in attending meetings with the company, Boardman and Tom Phipps obtained confidential information which led them to purchase more shares in their own name in order to take over the company. Having taken over the company, they then proceeded to sell off certain assets and to achieve considerable profit for both themselves and the trust. The trust could not have obtained more 2

shares for itself because this was forbidden under the terms of the trust the investment could only have been authorised by a court. In any event, the trust did not possess the resources to mount a takeover. Furthermore, Boardman and Phipps did seek the consent of the trustees, but could not obtain the consent of all of them because one of them suffered from senile dementia. They sought the consent of the beneficiaries, but the court held that they had not disclosed sufficient information for this to be informed consent. Held: Boardman and Phipps were liable as constructive trustees of the profit arising from the shares. They were allowed a liberal allowance for their work and skill in achieving the profit Reasoning: Boardman and Phipps had not obtained valid consent and therefore were in breach of their fiduciary duty Boardman and Phipps had profited from information gained in their capacity as representatives of the trust The information was the property of the trust o This is unlikely to be accepted in Australia Principle: The fiduciary is liable to the principal for profits the fiduciary derived by reason of either or both the opportunity and knowledge acquired from the fiduciarys position The fiduciary must not place herself/himself in a position of conflict between duty and interest The fiduciary may be liable to account for the profit made in breach of fiduciary duty, or as a result of the fiduciary position, whether or not the principal could have acquired the benefit itself o If the fiduciary is ordered to account to the principal, the principal achieves a windfall. The unanimous and fully informed consent of the principal is required before a fiduciary of the trust can profit from an opportunity afforded by their role. Hospital Products Ltd v United States Surgical Corporation [1983] Facts: USSC manufactured surgical stapling devices and appointed Blackman as its sole distributor in Australia. As distributor, he was under a contractual obligation to use his best efforts to promote USSCs products. He formed a company, Hospital Products, as the vehicle for his distributorship business. During the period that he was acting as USSCs distributor, he used a process of reverse engineering to manufacture his own

products which had been copied from USSC. He then sold his own products to the detriment of USSCs business in Australia. Issue: whether a distributor was in a fiduciary relationship with the manufacturer such that a breach of his duties gave rise to the equitable remedies of an account for profits or a constrictive trust? Held: Although Blackman was in breach of his contractual obligations to USSC, he was not in a fiduciary relationship. Reasoning: Gibbs CJ stated that the following circumstances prevented a fiduciary relationship from existing: The arrangement was a commercial one entered into the parties at arms length and on equal footing It was the intention that both parties should would gain a profit o HPI was entitled to make a profit from the entire conduct of the distributorship, and possible/actual conflicts might have arisen between its interest and its duty at any stage in the conduct of that business. Principle: Mason J outlined the following principles: o The accepted fiduciary relationships are sometimes referred to as relationships of trust and confidence: Phipps v Boardman [1967]; viz, trustee and beneficiary, agent and principal, solicitor and client, employee and employer, director and company, and partners NB. Doctor/Patient is another established category of fiduciary relationship o The critical feature of these relationships is that the fiduciary undertakes or agrees to act on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interest of that other person in a legal or practical sense. NB. Apply this where there is a novel case o There are two critical notions involved in a fiduciary relationship: the vulnerability of the person to the abuse by the fiduciary of his power and the representative character of the relationship o The fiduciary is under a duty to exercise the power or discretion in the interests of the person to whom the duty is owed o A contractual and fiduciary relationship may exist between the same parties and the former may form the basis for the latter.

o The scope of the fiduciary duty must be moulded according to the nature of the relationship and the facts of the case: Phipps v Boardman A fiduciary is liable to account for a profit or benefit if it was obtained i. in circumstances where there was a conflict, or possible conflict of interest and duty or ii. by reason of the fiduciary position or by reason of the fiduciary taking advantage of opportunity or knowledge which he derived in consequence of his occupation of the fiduciary position Any profit or benefit obtained in the above circumstances is held by the fiduciary as a constructive trustee. It makes no difference that it was not his duty to obtain the profit or benefit for the person to whom the duty was owed. Other: Leeming: fiduciary obligations includes proprietary interests stripping the remedy down to damages means that the wronged person has no right to property United Dominions Corporation v Brian (1985) Facts: concerned a joint venture agreement for the development of land between UDC, SPL and Brian. The land in question was owned by SPL. The joint venture was largely financed by funds from UDC secured by a mortgage signed by SPL. The joint venturers provided the balance of the funds for the development. UDC retained the profit made. UDCs claim to what would otherwise have been Brians share of the profits was based upon a provision in the mortgage to SPL the collateralisation clause to the effect that the mortgage was security for any money that had been advanced to SPL. Brian claimed that the clause breached fiduciary obligations owed by both UDC and SPL. Held: UDC and SPL each acted in breach of its fiduciary duty. UDC was not entitled to diminish Brians share of the profits in order to recoup losses arising from SPLs borrowings which were unrelated to the joint venture. Reasoning: The proposed participants in each joint venture were under fiduciary obligations to one another in relation to the proposed project at the time when the first of the mortgages was given and accepted. In combining to apply the property to their own collateral purposes and in giving and obtaining those collateral advantages without the knowledge or consent of Brian, SPL and UDC each acted in breach of its fiduciary duty Principle:

Whether or not the relationship between joint venturers is fiduciary will depend upon the form which the particular joint venture takes and upon the content of the obligations which the parties to it have undertaken. A fiduciary relationship can arise and fiduciary duties can exist between parties who have not reached, and who may never reach, agreement upon the consensual terms which are to govern the arrangement between them. o A fiduciary relationship with attendant fiduciary obligations may, and ordinarily will, exist between prospective partners who have embarked upon the conduct of the partnership business or venture before the precise terms of any partnership agreement have been settled. The subject matter over which the fiduciary obligation extended must be determined by the character of the venture or undertaking for which the relationship between the prospective joint venturers existed A fiduciary must not do for the fiduciarys own benefit what ought to have been done, if at all, for the principal.

LAC Minerals Ltd v International Corona Resources Ltd [1989] SC Canada Facts: the plaintiff was the owner of certain mining rights in Ontario and revealed to the defendant, with whom it was considering a joint venture project, the results of the exploratory drilling. These showed that the adjacent land was likely to be rich in minerals. The defendant outbid the plaintiff for these adjacent rights and developed its own mine. Held: By majority, there was no fiduciary relationship between the parties but there was an equitable obligation of confidence to use the information only to decide whether to go into the joint venture using the plaintiffs mining rights Principle: Fiduciary obligation must be reserved for situations that truly are in need of the special protection that equity affords The nature of the relationship may be such that, notwithstanding that it is usually a fiduciary relationship, in exceptional circumstances it is not Not all obligations between the parties to a well recognised fiduciary relationship will be fiduciary in nature Keech v Sandford (1726)

Principle: The rule which prevents a trustee from renewing a lease personally when the leasehold had been held by trust, is applicable to others who have limited interests in property and who might get a pre-emptive opportunity to renew the lease or to purchase a reversion, which would not have come to them had they been strangers to the property. Chan v Zacharia (1984) HCA Facts: The parties had conducted a medical practice in partnership at premises of which they held a lease for a three-year term with an option of renewal for a further two years by notice given to the lessor not later than three months before the end of the term. During the third year of the term the partnership was determined and a receiver appointed. The parties could not agree to the joint exercise of the option of renewal. Dr Chan, within the option period, sought renewal for himself and later the lessor granted a lease to him for two years, on payment of a premium Held: Dr Chan was bound to account in the winding up of the partnership as a constructive trustee for any benefit he received from the new lease. Principle: With regards to liability to account, a person who is under a fiduciary obligation must account to the person to whom the obligation is owed for any benefit or gain: iii. which has been obtained or received in circumstances where a conflict or significant possibility of conflict existed between his fiduciary duty and his personal interest in the pursuit or possible receipt of such a benefit or gain or iv. which was obtained or received by use or by reason of his position or of opportunity or knowledge resulting from it. Any such gain or benefit is held by the fiduciary as constructive trustee it is immaterial that there was no absence of good faith or damage to the person to whom the fiduciary obligation was owed. Where a trustee renews a lease for his personal use which he had previously held as a trustee, there is an irrebuttable presumption of law that it was obtained by use of the trustees fiduciary position and therefore is held on constructive trust for the trust estate. The presumption in the case of a fiduciary other than a trustee is irrebuttable or rebuttable according to the nature of the powers and obligations of the fiduciary with respect to the leasehold property and the extent to which the interposition of

the fiduciary represents a barrier between the person to whom the fiduciary duty is owed and the lessor. The liability to account as a constructive trustee will not arise where the person under the fiduciary duty has been duly authorised to act in the manner in which he has acted. Fiduciary obligations continue after the determination of a partnership

Warman International Ltd v Dwyer (1995) HC Facts: Dwyer was a senior employee of Warmen. Warmen imported motorcycle parts and sold them in Australia. Whilst employed by Warmen, Dwyer makes an agreement with the Italian supplier that they will deal exclusively with him. Dwyer leaves Warmen and starts up his own company. Warmen sued. Held: Dwyer was a fiduciary who breached his duty through prioritising his interests at the expense of the companys and taking advantage of an opportunity derived from his fiduciary position. Warmen received the profits made. Principle: A fiduciary must account for a profit or benefit if it was obtained either: 1. when there was a conflict or possible conflict between his fiduciary duty and his personal interest, or 2. by reason of his fiduciary position or by reason of taking advantage of opportunity or knowledge derived from his fiduciary position The stringent rule that a fiduciary cannot profit from his trust is said to have two purposes: 1. that the fiduciary must account for what has been acquired at the expense of the trust 2. to ensure that fiduciaries generally conduct themselves at a level higher then that trodden by the crowd A fiduciarys liability arises even if the person to whom the duty is owed was unlikely or even unable to have made a profit from an opportunity exploited by the fiduciary. Other: As a result of Dwyers breach of his fiduciary duty, Warmen had a choice of the following remedies: 1. Account of Profits: Warmen gets the profits made by Dwyer as a result of his breach of his fiduciary duty 2. Restoration of Property: Warmen can request the contractual right be restored (this would be achieved by a constructive trust)

3. Compensation: Warmen would have asked for this remedy had Dwyer failed to make a profit o This is similar to damages but more advantageous because there is no limitation period (Williams v Minister (1935)), no discount for contributory negligence, novus actus interveniens Warmen is also important in relation to measuring account for profits allowance may be made for the contribution of the fiduciary. o Issue: whether the breach was innocent? Dwyer was not awarded an allowance for his efforts because his breach of his fiduciary duty was not innocent.

Green & Clara Pty Ltd v Bestobell Industries [1982] Facts: The defendant, Green, was a senior manager in a company involved in the building industry. He worked in Victoria, but was aware of the tendering practices in other parts of the country, including Western Australia. On learning that tenders were being invited for a major building project in Perth, he set up his own proprietary company and resigned his position with his employer. Knowing how his former employer would calculate its tender bid, his company put in the lower bid and won the tender. He put in the tender before he had finally left the employer. The employer put in the third lowest bid. Held: Green and his proprietary company were held liable to account for the profits from the venture. Reasoning: Green was in breach of his fiduciary duty because he took up an opportunity fro himself when he was under a duty to pursue that opportunity for his employer. It was irrelevant that his former employers would have been unsuccessful in the tendering process had he not put in the bid. Nor did his resignation prevent liability from arising, for he took advantage of the confidential knowledge he had acquired in the course of his employment to put in a lower bid. Nocton v Lord Ashburton Principle: The three primary remedies consequent upon a breach of a fiduciary obligation are: o Account of profits o Restoration of property taken o Payment of compensation Any breach of a fiduciary duty, however innocent, is fraudulent because equity regards the fiduciary obligation as paramount.

Clark Boyce v Mouat [1994] PC Facts: A solicitor acted for a mother who wanted to mortgage her house as security for a loan to her son, who was a client of the solicitor. The solicitor had been at pains to emphasis that her interests were not the same as her sons, and he had encouraged her to obtain legal advice. She had declined to do so. Held: The PC held that the solicitor had not been in breach of his fiduciary duty Reasoning: the mother had engaged the solicitor only to ensure that the mortgage documents were drawn up properly and not to offer advice on the wisdom of the transaction. The solicitor had fully explained to both parties that their interests were opposed with the result that he would not necessarily be able to tell them everything he found out about the property Principle: A solicitor may act for both parties in a transaction where their interests may conflict provided that he has obtained the informed consent of both to his acting. o Informed consent means consent given in the knowledge that there is a conflict between the parties and as a result the solicitor may be disabled from disclosing to each party the full knowledge which he possesses as to the transaction or may be disabled from giving advice to one party which conflicts with the interests of the other. Commonwealth Bank of Australia v Smith (1991) Facts: the bank manager in a small country town took on the role of financial advisor to a couple who had been customers of the bank for many years and who were interested in purchasing a licensed leasehold of a hotel. One of the banks other customers was selling the hotel and it was in the banks interest to see the sale occur for the customer had a substantial overdraft. The bank manager advised the purchasers on the merits of the purchase and, although he revealed the vendors were customers and that he was not at liberty to disclose confidential information, he actively discouraged the purchasers from seeking independent advice. The price paid by the purchasers was too high and they lost a lot of money as a consequence. Held: the bank was held liable to compensate purchasers for some of their losses on a number of grounds, including breach of fiduciary duty. Reasoning: a bank may be expected to act in its own interests in ensuring the security of its position as a lender to its customer but

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it may have created in the customer the expectation that nevertheless it will advise in the customers interests as to the wisdom of a proposed investment. This may be the case where the customer may take it that to a significant extent his interest is consistent with that of the bank in financing the customer for a prudent business venture. In such a way the bank may become a fiduciary Principle: Fiduciary obligations will be imposed in circumstances where the customer is reasonably entitled to rely upon the bank for investment advice and could not anticipate that the bank would have interests contrary to that of the customer. It is no defence by a fiduciary to show that, had there been disclosure, it would have made no difference as to how a client would have acted. Breen v Williams (1996) Facts: Breen had silicone implants. She became involved in a class action against the manufacturer of the implants and agreed to settle her complaint. She required her medical records in order to do this, however, her doctor argued that she was not entitled to them. Held: doctors are not under a fiduciary obligation to give their patients access to medical records. Principle: There is a fiduciary element in the relationship between doctor and patient Fiduciary duties arise from either of two sources: o Agency o Relationship of agency or influence by one party over another, or dependence and trust on the part of that other Other: A doctor may be in breach of a fiduciary duty if, without disclosing the conflict of interest to the patient, they advise a patient to be treated at a particular hospital in which they have a financial interest, send specimens to a lab in which they have an interest or prescribe a drug among a number in order to gain a benefit from a pharmaceutical company News Ltd v Australian Rugby League Ltd (1996) Facts: concerned the creation of the super league. ARL tried to stop players joining the super league, arguing that the clubs owed them a fiduciary duty and the contract with the players constituted property that was held on trust for it.

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Held: The court held that there was no fiduciary obligation although there had been a breach of contract (it was an implied term of contract that would not set up a rival competition). Reasoning: The arrangement which existed between the clubs indicated that they were entitled to act self-interestedly they had been set-up to compete with each other. Principle: The existence of a fiduciary obligation does not determine the scope of the fiduciaries duties this is determined by the circumstances surrounding the relationship Business relationships can attract fiduciary obligations The court distinguished between vertical and horizontal fiduciary relationships in the determination of the existence of a fiduciary relationship: o Horizontal: collaborative relationships such as partnerships and joint ventures: Criterion: likely to involve an undertaking, actual or imputed, that the parties act only for their mutual advantage and notions of mutual trust and confidence o Vertical: relationships between principal/agent employer and employee Criterion: likely to involve a party undertaking to act solely in the interests of another Prince Jefri Bolkiah v KPMG [1999] Principle: The only duty of a solicitor to a former client which survives the termination of the relationship is a continuing duty to preserve the confidentiality of the information provided Maguire v Macaronis (1997) HC Facts: concerned solicitors lending money to their own clients at 24%. The solicitors asserted that the clients came to them because their other finance fell through and that they were committed to buying and would have done the deal regardless. Held: the court set aside the transaction (rescission) the clients accounted for the principle and the time value of the money (the interest rate nb. Supreme Court rates) Reasoning: The stated that the fact that the clients would have proceeded with the transaction regardless was irrelevant the disclosure had to be open and fair and free from

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all objection. The solicitors should have advised the Macaroniss to get independent legal advice Pilmer v Duke Group Ltd (2001) HCA Facts: Kia Ora Gold Corp Ltd took over Western United Ltd, a company in which many of Kia Ora Gold Corps directors held an interest. Under such circumstances, law required the preparation of a report by independent qualified persons for the information of shareholders whose approval was ultimately required at a general meeting. The firm of chartered accountants engaged by Kia Ora Group had a long history of dealing with both companies. The report asserted that the price paid for the shares in Western Ltd was fair and reasonable, however, the Kia Ora Group payed out around $26 m for $6 m worth of shares, enabling the directors to make huge personal profits. Kia Ora subsequently bought an action against the partners of the accountancy firm seeking to recover for its loss. The South Australian Full Court reduced the amount of equitable compensation for what it called contributing fault Held: No fiduciary obligation had been breached Principle: Considerations of a plaintiffs contribution to its own loss has no place in the determination of equitable compensation ie. rejected notion of contributing fault Norberg v Wynrib [1992] SC Canada Principle: Fiduciary obligations are conceptually and functionally distinct from contract and tort: o Negligence/contract: the parties are taken to be independent and equal actors, concerned primarily with their own self-interest Law seeks a balance between enforcing obligations by awarding compensation when breached and preserving optimal freedom of those involved in the relationship o Fiduciary: one party exercises power on behalf of another party and pledges himself to act in the best interests of the other The balance favours the person wronged when breached Bristol and West Building Society v Mothew [1998] Principle: Not every breach of duty by a fiduciary is in breach of a fiduciary duty. A fiduciary may commit a breach of contract without necessarily committing a breach of fiduciary duty.

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B. BREACH OF CONFIDENCE If a defendant is proved to have used confidential information, directly or indirectly obtained from the plaintiff, without the consent, express or implied of the plaintiff, he will be guilty of an infringement of the plaintiffs rights: Saltman Engineering Co v Campbell Engineering Co Ltd (1948) The doctrine protects a range of social interests: o Commercial/trade secrecy o Confidential ideas not yet in the public domain o Privacy Answering the Breach of Confidence Question: o Government Secrecy 1. Acknowledge operating in equitys auxiliary jurisdiction 2. Outline the three requirements in Coco but recognise the limitations of this test: a. The information must be confidential Test: whether the information is freely available to any member of the public o Only few people knowing is sufficient to satisfy the first limb b. Circumstances importing an obligation of confidence Test: whether the information was disclosed on the basis of confidentiality and for limited purposes? 14 o Objective test c. Unauthorised use of the information to the detriment of the party communicating it

Saltman Engineering Co Ltd v Campbell Engineering Co Ltd (1948) Facts: concerned a new design for leather tools developed by the plaintiff. Principle: If the defendant is proved to have used confidential information, directly or indirectly obtained from the plaintiff, without the consent, express or implied, of the plaintiff, he will be guilty of an infringement of the plaintiffs rights The information must be imparted or obtained in circumstances of secrecy The information must not be something which is public property and public knowledge The focus is local: prior publication overseas will only be relevant if they affect the confidentiality in the locality for which it is claimed. With regards to a trade secret, a degree of labour and effort must be involved. Reverse engineering of a product on the market to determine its secrets is not covered If the question is whether the information has been imparted in confidence, the test generally used is whether the information is disclosed on the basis of confidentiality and for limited purposes o This is an objective test Coco v AN Clark (Engineers) Ltd [1969] Facts: the plaintiff entered into negotiations with the defendant regarding a joint venture to manufacture a moped that had been designed by the plaintiff. During the course of negotiations access had been granted to the designs of the plaintiff. After negotiations broke down, the defendant began to manufacture mopeds that incorporated some of the design elements of the plaintiff. The

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plaintiff sought an interlocutory injunction to prevent the manufacture and sale of the moped. Held: On the balance of convenience, the injunction was not granted although undertakings were accepted that a notional royalty should be accounted for per sale should the plaintiff succeed at trial. Reasoning: the fact that the components of the plaintiffs moped design were available to anyone on the open market was sufficient to deny confidentiality. Principle: Three elements are required if, apart from contract, a breach of confidence is to succeed: o The information itself must have the necessary quality of confidence about it something which is public property and public knowledge: Saltman cannot per se provide any foundation for proceedings for breach of confidence something that has been constructed solely from materials in the public domain may possess the necessary quality of confidentiality o The information must have been imparted in circumstances importing an obligation of confidence Test: whether the information was disclosed on the basis of confidentiality and for limited purposes? Objective test ie. if the circumstances are such that any reasonable man standing in the shoes of the recipient of the information would have realised that upon reasonable grounds that the information was given to him in confidence, then this should suffice to impose on him the equitable burden of confidence NB. Later cases have suggested that the obligation may extend beyond information imparted in confidence to encompass at least information that is surreptitiously obtained and it is accepted that third parties can be subject to obligations arising out of anothers breach. o There must be an unauthorised use of the information to the detriment of the party communicating it

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Megarry J suggested that normally detriment should be shown in addition to unauthorised use, although subsequently doubting whether the requirement should be regarded as absolute NB. Detriment seems to be something to be subjectively assessed Courts may adopt a flexible approach to remedies where information is likely to remain confidential for a limited time only, or the information used by the defendant is partly private, partly public Other: Although a useful guide, the above formulation is not entirely accurate see nbs. ABC v Lenah Game Meats Pty Ltd (2001) Facts: the operations of the plaintiffs abattoir had been surreptitiously filmed by an animal rights organisation and passed onto the ABC for public airing Held: confidentiality could not be claimed Reasoning: the information was not private and confidential in the sense that its disclosure or observation would be highly offensive to a reasonable person of ordinary sensibilities Gummow and Hayne (Gaudron concurring) questioned whether Lenah Game Meats as a commercial corporation could claim privacy interests in the information concerned simply because its interests would have to be commercial exploitation (pocket book sensitivity) Other: The fact that the absence of confidentiality had been conceded by the parties in that case means that its authority in cases where the concession is not made might justifiably be questioned Wheatley v Bell [1982] Facts: the 3rd party paid valuable consideration for the information under a franchise contracts without suspecting that the information had been given in breach of confidence. Principle: An injunction can be obtained against any third party who knowingly obtained the confidential information in breach of confidence or in any other fraudulent manner. Notice of the confidential nature of information acquired will subject the third party to confidentiality obligations -

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even later notice will suffice if it is given before the information is used. Prince Jefri Bolkiah v KPMG [1999] Principle: A real risk of unauthorised use was considered to be enough to constitute breach of confidence NRMA v Geeson (2001) Held: loss was not required in order to obtain an injunction preventing the dissemination of confidential information Principle: There is no requirement of detriment in breach of confidential information The test for breach entails an inquiry into the extent and limits of the obligation of confidentiality that may be imposed on an individual in regard to particular pieces of confidential information in his or her possession Smith v Kline & French Laboratories (Aust) Ltd v Secretary Department of Community Services and Health (1991) Facts: concerned the submission of test data to a Government Department in order to obtain marketing approval for a pharmaceutical product (Cimetidine) and the later use of information by the Department for the purposes of assessing a competitors generic product Held: whilst the information was confidential, there was no breach of duty Principle: the confiders purpose test was inappropriate in circumstances where each partys interest was different and known to be so. Rather, the question of breach should be answered by seeing whether unfair advantage had been taken of the information. Other: this test has not come to much Terrapin Ltd v Builders Supply Co (Hayes) Ltd (1959) Facts: concerned the manufacture of a pre-fabricated structure. The structure had been put on the market and was thus susceptible to reverse engineering. However, the defendants had breached confidence by using the designs of the plaintiff, and by doing so got a head start on other competitors in the field. Held: to counter this unfair advantage, the court ordered that the defendant be placed under a special disability, in the form of an injunction preventing it from entering the market, which lasted until the information fully reached the public domain. Principle: a person who has obtained information in confidence is not allowed to use it as a springboard for activities detrimental 18

to the person who made the confidential communication, and springboard it remains even when all the features have been published or can be ascertained by actual inspection by any member of the public Douglas v Hello Ltd [2001] Facts: Catherine Zeta-Jones and Michael Douglas sought to injunct publication of photographs which had been taken without their approval. The couple had entered into a contract with OK! Magazine for the publication of the wedding photographs. All guests were aware that photography was forbidden and staff signed confidentiality agreements. Someone managed to take photographs and supply them to the rival publisher of Hello! Magazine Issue: whether an injunction should be granted to prevent Hello! from publishing the photographs Held: the balance of convenience led against the granting of an injunction. Reasoning: the Douglas/Zeta-Jones family had traded their rights as commodities and as such damages would be an adequate remedy for any proved breach. Other: Leeming: For an interlocutory injunction, one must show that one has an arguable case and that the interlocutory injunction is the lease inconvenient thing to do. o Although the Douglass demonstrated breach of confidence, they could not demonstrate that the balance of convenience favoured giving them relief upfront. Hello had already gone to the presses and could be sued for damages later on if the alleged breach was proven This case is good for refuting the notion that the second element in Coco does not extend beyond information imparted in confidence Careful! This case turned upon the European right to privacy Subsequently: the Douglass won damages at trial however most of the money went to the magazine for they had already paid money for the exclusive rights to the pictures and lost profits Prince Jefri Bolkiah v KPMG [1999] Principle: if a solicitor has confidential information from a former client, the question is whether there is a real risk of the use of information which is confidential to the former client. If so, the

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firm

will

be

precluded

from

acting.

Campbell v MGN Ltd [2004]HoL Facts: A newspaper published details of Campbells group therapy program and photos of her attending meetings. Held: awarded damages Other: Campbell sued principally upon the basis of breach of confidence however it was informed by the contradiction between the freedom of the press and right to privacy as enunciated in the conventions. This is not directly relevant to Australian law because we do not have a statutory basis for right to privacy and breach does not extend to photographs. Remedy In most breach of confidence cases, an injunction will be sought to prevent any future breaches and, if the claim is made out, normally, this will be granted o There is exception for cases where the information is no longer confidential the plaintiff is normally left only with the possibility of monetary remedies being awarded The Exclusive or Auxiliary Jurisdiction of Equity Focus: exclusive jurisdiction of equity o No contract or promise not to disseminate the information exists Auxiliary jurisdiction of equity: an injunction granted preventing an employee from disclosing confidential information in breach of contract the injunction will lie in equitys auxiliary jurisdiction EXAM: explain that as there is no contract, it is not possible for relief to be had in equitys auxiliary jurisdiction the focus must be upon exclusive jurisdiction in terms of confidential information

RELIEF FROM UNDUE INFLUENCE Undue Influence: Improper or unconscionable use of an ascendency acquired by one person over another for the benefit of himself or herself or someone else so that the acts of

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the person influenced are not, in the fullest sense of the word, his or her free voluntary acts Answering a question involving undue influence: 1. Consider the applicability of unconscionable transactions: Outline the distinction between undue influence and unconscionable transactions as enunciated by Deane J in Armadio 2. Consider whether there is (Johnson): Actual Undue Influence [weaker party must prove undue influence] o Consent procured by threats o Abuse of position of influence Presumed Undue Influence o Presumption arising through recognised relationship [automatic presumption of undue influence and immediate placement of onus upon defendant to disprove abuse of position] Includes: parent/child, guardian/ward, religious leader/adherent, solicitor/client, doctor/patient o Presumption arising through evidence as to the nature of the relationship [weaker party must demonstrate the nature of the relationship in order for the presumption to arise if successful, onus upon defendant to rebut presumption] The applicant will be seeking to draw the courts attention to any number of factors that frame the relationship as appropriately influential extreme age, disability, illiteracy, poor education, lack of business knowledge and experience - factors which place the applicant in a weak and dependent position vis a vis the other party 3. In circumstances involving third parties which are the stronger party in the relationship to the weaker party (eg. guarantor-creditor), consider whether the bank had actual or constructive notice of the existence of a special relationship between the borrower and the guarantor (Rogers) 4. Rebuttal of presumption: Stronger party must prove that the gift etc was an independent and well-understood act of a man Allcard v Skinner (1987)

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Facts: Allcard entered into a religious order and transferred substantial property holdings to the mother superior of the order for her to hold on trust for the general purposes of the sisterhood. Allcard left the order 8 years later and 5 years later sought the return of her property. Principle: the object of the doctrine of undue influence is to protect people from being forced, tricked or misled in any way by others into parting with their property Johnson v Buttress (1936) Facts: Buttress (67) had limited capabilities he was entirely illiterate, inexperienced in business and possessed less than average intelligence. He was regarded as unstable in his affections and in forming his intentions. His relationship with Johnson became closer following the death of his wife. He executed the gratuitous transfer in favour of Johnson of his only substantial asset, property on which his house was erected. He had no independent advice. Following his death, the administrator of Buttresss estate brought a suit to set aside the gift to Johnson on the grounds of undue influence Held: the transfer was set aside Reasoning: Majority: the presumption of undue influence did arise in light of the nature of the particular relationship between the parties: it is an error to treat the subjects of capacity and influence as if they were separate elements. Butin this particular case it is the mans illiteracy, his ignorance of affairs, and his strangeness in disposition and manner that provide the foundation for the suggested relation. Starke: the case was more properly viewed as one where the undue influence was actual: the age and capacity of the deceased, the improvident and unfair nature of the transaction, the want of proper advice, the retention of the rents of the property transferred, the various testimony dispositions..the transfer was not result of free and deliberate judgement of the deceased, but the result of unfair and undue pressure on the part of the appellant Principle Two categories of undue influence exist: o Actual Undue Influence: the relationship cannot give rise to the presumption and facts must be proved showing that the transaction was the outcome of such an actual influence over As mind that it cannot be considered to be a free act

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o Presumed Undue Influence: the parties may antecedently stand in a relation that gives to one an authority or influence over the other Established Relations of Influence: the presumption of undue influence will be automatically imposed upon a party to a wellknown relationship and the onus cast upon the party perceived to be stronger to show they did not abuse their position. Includes solicitor/client, physician/patient, parent/child, guardian/ward, fianc/fiance (nb. contentious category) De facto Relations of Influence: The weaker party must first demonstrate the nature of the relationship in order for the presumption to arise a relationship involving one party occupying or assuming towards another a position naturally involving an dominance or influence over that other, or a dependence or trust on his part once the court is satisfied that the parties were in an appropriately influential relationship, the onus is again on the stronger party to rebut the presumption that the influence was undue. Rebutting the presumption: o The person seeking to uphold the transaction must show that the transaction of a was the independent and well-understood act person in a position to exercise a free judgement based on information as full as that of the party in the position of influence ie. i. that the donor was fully informed at the time of transacting ii. that the donors decision was an independent one, uninfluenced by the donee.

Bank of NSW v Rogers (1941) Facts: Rogers, a mature woman of sound intelligence, although lacking in business experience, lived with her uncle Gardiner and relied upon his advice in commercial matters. In order to assist his business venture, which was in trouble, she put forward the bulk of her property as security for a loan to the bank of NSW. The uncle was on the brink of bankruptcy and the loan was unlikely to save him. When his business did indeed collapse, the bank moved to recover from Rogers under the contract of guarantee she made

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with it. She sought to set aside the contract upon the grounds of undue influence. Held: transaction set aside Reasoning: the presumption of undue influence arose from the relationship which existed between the uncle and his niece and that the finding was not successfully rebutted. Starke J found that the bank knew that some special relationship existed between Gardiner and the respondent, some relationship that was not merely one of business but of confidence and trust, which enabled Gardiner to exercise some influence over her Principle: In circumstances involving third parties, the weaker party must prove that she was subject to undue influence by a third party and that the stronger party had notice either actual or constructive that the transaction was obtained by such means. If this state of circumstances is established, the stronger party has the onus of justifying the transaction it must show that the transaction was the free and well-understood act of the weaker party. Royal Bank of Scotland plc v Etridge [2002] Principle: In cases of presumed undue influence, there is a requirement of proof of manifest disadvantage There are two pre-requisites for a presumption of undue influence: i. that A reposed trust and confidence in B ii. the transaction is not readily explicable by the relationship between the parties The requirement for proof of manifest disadvantage goes to the second pre-requisite, and it is a necessary limitation upon the first-prerequisite. Barclays Bank plc v OBrien [1994] HoL Principle: A person who has been induced to enter a transaction by the undue influence of another is entitled to set that transaction aside as against the wrongdoer. Such undue influence is either actual or presumed. Actual Undue Influence: it is necessary for the complainant to prove affirmatively that the wrongdoer exerted undue influence on the complainant to enter into the particular transaction which is impugned. Presumed undue influence: the complainant has to show that there was a relationship of trust and confidence between the complainant and the wrongdoer of such a nature that it is fair to presume that the wrongdoer abused that relationship in

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procuring the complainant to enter into the impugned transaction. Once a confidential relationship has been proven, the burden then shifts to the wrongdoer to prove that the complainant entered into the transaction freely. Such a confidential relationship can be established: o Certain relationships as a matter of law raise the presumption that undue influence has been exercised o If the complainant proves the de facto existence of a relationship under which the complainant generally reposed trust and confidence in the wrongdoer In a case where the borrower and guarantor are husband and wife respectively, the financier will be fixed with constructive notice of the borrower-husbands influence upon proof that it was aware they were married unless it takes steps at the outset of the transaction to ensure that the wife is properly informed about the risks and given the opportunity to obtain independent advice

Bester v Perpetual Trustee Co Ltd [1970] Facts: the applicant, a young woman of 21 yrs without parental guidance and of extremely limited business experience, had been encouraged to make a settlement of a substantial inheritance received from her father. The effect of this irrevocable document was to put her assets beyond her control and to provide her with only a modest annual income from the property. She was influenced by three older men the representative from her trustee company and two uncles. The plaintiff had received advice from a disinterested solicitor prior to the signing of the transaction he read the document through to the applicant and asked whether she had any questions Held: undue influence was successfully raised and the settlement deed was set aside Reasoning: A special relationship of influence existed (paternal element which pervaded the transaction) and the presumption was not offset by the advice received: it was not textual advice upon the engrossment which was of prima importance:it was advice upon the more general topic of whether a settlement should be entered into at all, and, if so, the general nature of the settlement Principle: Although independent advice will be indicative of freedom of consent, its ultimate success will be dependent upon the quality of the advice and the surrounding circumstances.

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Related Equitable Doctrines: Unconscionable Transactions Commercial Bank of Australia Ltd v Armadio (1983) Facts: two elderly migrants from Italy with very limited business experience and grasp of written English executed a mortgage to secure the bank overdraft of their son, on whom they relied, on the faith of his misrepresentation that liability was limited to a six month period and an amount of $50 000 in circumstances where the sons business was trading precariously, where the parents were ignorant of the material facts and not in possession of independent advice and where the bank knew enough to raise in its mind the possibility that the parents were in a position of special disadvantage Principle: Deane J: undue influence looks to the quality of the consent or assent of the weaker party.unconscionable dealing looks to the conduct of the stronger party in attempting to enforce, or retain the benefit of, a dealing with a person under a special disability in circumstances where it is not consistent with equity or good conscience that he should do so Mason J: in undue influence the will of the innocent party is not independent and voluntary because it is overborne whilst under unconscionable dealing, 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

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THE PRINCIPLE IN YERKEY V JONES The rule in Yerkey v Jones (1939) is a particular application of the undue influence doctrine: o Relevant where a married woman gives a guarantee or mortgage in support of a debt contracted by her husband or by a company her husband controls o Applies where the financier relies upon the husband to obtain his wifes consent to the mortgage or guarantee. The rule in Yerkey v Jones has two limbs: o If the wifes consent is procured by the husbands undue influence, the wife will be entitled as against the financier to have the mortgage or guarantee set aside unless the financier can show that she received independent advice; and The wife must either prove actual undue influence or point to the features of the relationship which make the existence of presumed undue influence likely The financier is fixed with constructive notice of the husbands actual or presumed undue influence by virtue of knowing that the parties are married o If the wife fails to understand the effect of the document and the significance of giving a guarantee, she may be entitled as against the financier to have the transaction set aside unless the financier took steps to inform her about the transaction and reasonably supposed that she understood. The rule in Yerkey v Jones is limited to guarantees it does not apply where the parties are co-borrowers. Garcia v National Australia Bank Ltd (1998) HC Facts: wife guarantees husbands business Held: transaction set aside

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Reasoning: although the wife was a director of the company, she effectively was a volunteer who did not comprehend what she was signing and got nothing in return for guaranteeing the transaction. Principle: Even though there may be no actual undue influence exercised by a husband in procuring his wife to execute a guarantee in his favour, it is unconscionable for a creditor to enforce the guarantee where: o the wife did not understand the purport and effect of the transaction o the transaction was voluntary in the sense that the wife obtained no gain from the contract the performance of which was guaranteed o the lender is to be taken to have understood that the wife may repose trust and confidence in her husband in matters of business and therefore to have understood that the husband may not fully and accurately explain the purport and effect of the transaction to his wife o the lender did not take steps to explain the transaction to the wife or discover whether a stranger had done so All that the creditor need notice of is that the creditor knew the surety was married to the borrower at the time of the guarantee. If the bank shows that competent, independent and disinterested advice was received, then it will be able to enforce the guarantee. The HC confirmed the rationale that people who are married are in a relationship of trust and confidence Other: Leeming: the HC distinguished between: o The wife who comprehends what she is doing but only does so because of her husbands ascendency over her Where the bank is on notice of undue influence, it will not be cured by independent legal advice because the wifes will is not free and voluntary o The wife who does not understand but signs because she trusts her husband Will be cured by legal advice

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Answering an unconscionable dealing question: C. RELIEFConsider the applicability of undue influence: 1. FROM UNCONSCIENABLE TRANSACTIONS A transaction Outline set aside as unconscionable wherever one will be the distinction between undue influence party by reason of some condition or circumstance is placed by and unconscionable transactions as enunciated at a special disadvantage vis--vis another and unfair or Deane J in Armadio unconscientious unconscionablethen taken of the opportunity 2. Elements of advantage is dealing (Armadio): thereby created: Blomley v Ryan (1956) A is under a special disability o The condition must be one which seriously affects the ability of the innocent party to make a judgement as to his own best interests (Armadio) o The condition must have the effect of placing one party at a disadvantage vis--vis another B knew, or is likely to have known, about that disability o Actual or constructive knowledge (Armadio) B proceeds to use that disability unconscionably in order to obtain As consent to the transaction (see 3) 3. Rebutting the presumption: proof of As special disability and Bs knowledge raises a presumption of unconscientious dealing on Bs part. The onus then shifts to B to demonstrate that no advantage was taken (Louth v Diprose). The presumption may be rebutted by: showing that29 transaction was not unfair the o gift transaction was not improvident o contract adequate consideration

Wilton v Farnworth (1948) HC Facts: The respondent, a 40 yr old miner, was dull-witted, deaf and uneducated. He co-habited with a 63-yr-old woman whom he later married. Shortly afterwards he went to Perth and set up a profitable boarding house. The respondent remained in Kalgoolie and paid his wife maintenance. In 1946, his wife was murdered whilst trafficking in gold and died interstate. The respondent then transferred to the appellant, his step son, his interest in his wifes estate by way of gift. The contents of the deed of gift were not explained to him, nor did he realise the extent of his share in the estate. Held: transaction was set aside and appeal to the HC failed Reasoning: There was an inequality in the capacities of the parties to which the defendant was fully alive. The plaintiffs special disability arose from his deafness, lack of education, limited intelligence, and his ignorance as to the value of the property that was at stake. Principle: In equity there is a presumption of validity of contracts: In the absence of fraud or some other of the special circumstances, a man cannot escape the consequences of signing a document by saying, and proving, that he did not understand it o A more lenient attitude may be taken in relation to gifts, however the presumption is still in favour of validity The onus lies upon the donor to prove a substantial reason for setting the transaction aside It has always been considered unconscientious to retain the advantage of a large amount of property improvidently made by the alleged donor who did not understand the nature of the

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transaction and lacked information of material facts such as the nature and extent of the property particularly if made in favour of a donee possessing greater information who nevertheless withheld the facts Blomley v Ryan (1956) Facts: the respondents (vendor under contract of sale) mental and physical powers were much impaired by old age and addiction to rum. He was uneducated and of humble social status. Negotiations for sale, conducted by the purchasers agent and the purchaser, proceeded over a bottle of rum supplied by the agent. At the time, the respondent, was partly drunk and was ill from excessive and chronic drinking of rum. The vendor entered into a highly unfavourable contract inadequate consideration and interest. The purchaser sued for specific performance. Held: relief was refused and the court ordered that the transaction be set aside on the ground that it was an unconscionable bargain. Principle: The sorts of disadvantage that attract the doctrine are varied but include: poverty or 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. The common characteristic seems to be that they have the effect of placing one party at a serious disadvantage vis--vis the other Intoxication is not generally considered to be a disadvantage, however, a court will set aside a transaction where the judgement of one party was seriously affected by drink and the other party was aware of the situation. o Adequacy of consideration will be an important factor in intoxication cases Inadequacy of consideration, whilst never of itself a ground for resisting enforcement, will often be a specially important element in cases involving unconscionable dealing: o Supporting the inference that a position of disadvantage existed o Demonstrating that an unfair use was made of the occasion It is not essential that the party to the transaction should suffer loss or detriment in the bargain Commercial Bank of Australia v Amadio (1983)

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Facts: the plaintiff guarantors were elderly Italians with a limited command of written English and no relevant business experience. They agreed to execute a mortgage guarantee in respect of their sons business overdraft, in the mistaken belief that the business was flourishing. Their son had lied to them about the financial situation and the bank itself had contributed to the deception because it had adopted a practice of selectively dishonouring the sons cheques in order to create the appearance of solvency. The Armadios had been lied to regarding the extent of their liability under the guarantee. They received no independent advice before the transaction. Held: the entire transaction was set aside Reasoning: the plaintiffs special disability rested upon their ages, lack of business experience, their mistaken belief about the solvency of their sons business, the circumstances in which they were asked to sign the mortgage documents and their lack of understanding/knowledge as to what the documents contained. The transaction was set aside unconditionally as it was perceived as flowing from the special disability and which was evident to the bank and as being unfair, unjust and unreasonable Principle: I qualify the word disadvantage by the adjective special in order to disavow that the principle applies whenever there is some difference in the bargaining power of the parties o The requirement of a disadvantage is that the condition must be one which seriously affects the ability of the innocent party to make a judgement as to his own best interests Proof that B knew of As disadvantage is not required it is sufficient if B was aware of the possibility that the situation might exist, or the facts would raise this possibility in the mind of a reasonable person Where an order is made setting aside the whole of the transaction on the grounds of unconscionable dealing, the order will, in an appropriate case, be made conditional upon the party obtaining relief doing equity Louth v Diprose (1992) Facts: the plaintiff (48 yrs) was a solicitor who became infatuated with the defendant, a younger woman. She did not return his feelings, but for a period of seven years she accepted gifts from him. To help her through a period of personal crisis, he gave her money for a house. Some years later, they fell out and he demanded that she transfer the house to him and pay him rent. Diprose brought an action to claim the beneficial in the property

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Held: the plaintiff succeeded on the ground that the transaction should be set aside as unconscionable Reasoning: the special disability arose not merely from the respondents infatuation. It extended to the atmosphere of crisis in which he believed that the woman with whom he was completely in love and upon whom he was emotionally dependent was facing...the appellant was aware of this special disabilityshe manipulated it to her advantage Principle: Proof of As special disability and Bs knowledge raises a presumption of unconscientious dealing on Bs part. The onus then shifts to B to demonstrate that no advantage was taken a relationship can provide the source of a special disadvantage Bridgewater v Leahy (1998) Facts: The disputed transaction was between a wealthy grazier (A) and his nephew (B) and Bs wife. The transaction comprised the sale of several properties by A to B and Bs wife for close to $700 000 coupled with a deed for forgiveness for all but $150 000 of the sale price. B had worked As propertys and a close relationship with A. A died a year after the transaction at 85 and it was challenged by As widows and daughters. A knew and understood what he was doing when he entered into the transaction Held: the doctrine of unconscientious dealing applied. Nephew took uncle to complete documentation. Reasoning: The court stated that the question was not whether A knew what he was doing, but how his intention to benefit B was produced. The relationship between A and B meant that when B initiated the transaction, A and B were on unequal terms: [B] took advantage of his position to obtain a benefit through a grossly improvident transaction on [As part]. Other: majority judgement was not clear upon what As disadvantage lower courts had rejected allegations of undue influence and thus the source of the disadvantage was not their relationship. Statutory Framework Whilst litigants may prefer the remedial flexibility of the various statutes, they still have the option of pursuing relief under the equitable principles
CONTRACTS REVIEW ACT 1980 (NSW)

s 7(1): provides for the reopening of a contract if it is found by a court to be unjust

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o s 4(1): unjust includes harsh, unconscionable or oppressive s 9 (1): In deciding whether a contract is unjust, the court is directed to have regard to the public interest and all the circumstances of the case s 9 (2): the court should have regard to: o (a): whether there was any material bargaining inequality between the parties o (b): whether or not the provisions of the contract were the subject of negotiation o (c): whether or not it was reasonably practicable for the parties seeking relief to negotiate for alteration or removal of any of the provisions of the contract o (d): whether or not the provisions of the contract imposed conditions which were unreasonable o (e): whether the party to the contract was unable to protect their interests because of age or physical or mental incapacity o (f): the relative economic circumstances, educational background and literacy of the parties o (g): the form and the intelligibility of the contract o (h): whether independent advice was obtained by the party seeking the relief o (i): the extent to which the contract was explained to, and understood by, the party seeking the relief o (j): whether there was any undue influence, unfair pressure or unfair tactics exerted on the party seeking relief o (k): the conduct of the parties in relation to similar dealings o (l): the commercial setting of the contract s 6(2): barred from seeking relief are public and local authorities, corporations, and a person who enters into a contract in the course of, or for the purpose of, a trade, business, or profession (other than a farming undertaking) o In application to buyers, the Act is effectively limited to consumer dealings o A supplier can seek relief under the act subject to the above limitations In granting relief, the court may: o Refuse to enforce all or nay part of the provisions of the contract o Declare the contract void in whole or part o Vary the contract

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TRADE PRACTICES ACT 1974 (CTH)

s 51AA (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 s51AB (2): this statement does not apply to conduct prohibited by s 51AB s 51AB (1): a corporation shall not, in trade or commerce, in connection with the supply or possible supply of goods or services to a person, engage in conduct that is in all the circumstances unconscionable o limited to consumer dealings made between corporations and natural persons o applies only to supplies of good and services of a kind ordinarily acquired for domestic, personal or household use and consumption s 51 AB (2): factors relevant in determining whether conduct is unconscionable includes: o the relative strength of the bargaining position of the company and the consumer o whether, as a result of the conduct engaged in by the corporation, the consumer was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the corporation o whether the consumer was able to understand any documents relating to the supply or possible supply of goods or services o whether any undue influence or pressure was exerted on, or any unfair tactics were used against the consumer or a person acting on behalf of the consumer by the corporation or a person acting on behalf of the corporation in relation to the supply or possibly supply of goods and services o the amount for which, and the circumstances under which, the consumer could have acquired identical or equivalent goods or services from a person other then the corporation.

ACCC v CG Berbatis Holdings Pty Ltd (2003) Facts: concerned the desire by lessees of premises in a shopping centre to renew their lease in order that they could make an advantageous sale of their business. The lessors agreed to the granting of a new lease upon the condition that the lessees abandon a legal claim against them based upon overcharging of

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centre management fees. The lessees did no, secured the new lease, and sold their business. They subsequently sought remedy under s 51AA of the TPA alleging unconscionable conduct on the part of the lessors in insisting the claim be abandoned if a new lease was to be granted. Held: the HC majority found that there was no special disability under which the lessees could be said to have been operating when they negotiated the new lease with the lessors. Principle: the validity of s 51AA was upheld acknowledged the possibility of a special disability arising from a situation rather than a partys inherent characteristics. Other: As to the scope of s 51AA, it had ultimately been conceded by the ACCC that the case could be decided in an understanding of the section as representing simply the discrete doctrine of unconscionable transactions The court is on notice of the ambiguity of the reach of s 51AA Remedies A person may avoid an unconscionable transaction via: o Resisting an action for specific performance o Rescission of the impugned transaction

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