Dispute Resolution - Trade Practices and Fair Trading 

Trade Practices cases involve such areas as price fixing, price discrimination, restraint of trade (including certain types of exclusive dealing eg. Third line forcing), abuse of market power, misleading & deceptive conduct, and unconscionable conduct.

The Act provides certain product warranties for consumers, and extensive damages and other remedies can be awarded by the courts for breaches of the Trade Practices Legislation. 

Background

The case revolves around the business dealings of a small family business and a financial institution. Paul and Tina Roma emigrated to Australia and over a period of 20 years were able to build up several retail businesses as well as purchase investment properties. Funding to acquire the assets and run the business had been secured through the one bank. It was a good relationship for both parties. 

The problem started when Paul approached the bank to borrow $500,000 to purchase a shopping complex. The bank agreed and contracts were signed. Very shortly afterwards, Paul presented plans to renovate the property and increase the earning capacity. Again the bank was prepared to fund the business, although no formal correspondence changed hands. In the interim, the bank released the funds for the original purchase and continued to respond positively to regular reports on progress for the redevelopment project. 

Considerable development costs were incurred and existing tenants paid to exit their leases to prepare for the renovations. As part of the total refinancing of the project Paul provided mortgage security over the family home. 

The Dispute

At the last minute, and following council approval to proceed with the development, the bank advised it was not prepared to provide the finance. The property was now not earning any income and without the prospect of the renovations was not able to fund the current level of debt. On this basis the bank proceeded to recover its outstanding loans through its mortgage security including the family home. 

The Facts

Paul Roma had a long and successful relationship with the bank. The bank did disburse the original loan to purchase the property. The bank did not advise that there was a problem with the additional funding until late in the process. 

Paul Roma had spent considerable money and time on the proposed redevelopment. 

The bank had justified the mortgage over the family home in the light of the total funding requirement. 

The Process

Paul Roma contacted the Australian Competition & Consumer Commission (ACCC) who advised him that he might be able to bring a case against the bank for 'Misleading and Deceptive conduct'. Paul contacted a solicitor who advised him he would only recover a substantial financial loss by taking legal action for damages resulting from the actions of the bank. The original case went in favour of the bank and the matter proceeded to the Court of Appeal. Eventually the Court ruled in favour of Paul Roma holding that damages were payable and that the mortgage over the family home was invalid. 

Both parties decided to have the claim for damages mediated. The mediator decided to work with both parties separately to estimate the damages each believed was appropriate. The judgement had established a date when damages would commence and the negotiation revolved around the elements which made up the total value and how to assess the value of the elements, including interest rates, lost rent and likely rent increases. 

The mediator continued to question and test the methodology of each party to narrow the gap. At this stage neither party was aware of the others proposed offer. When the mediator was confident that they had made every effort to present a realistic proposal the parties were brought together to negotiate a settlement. 

The Mediated Outcome

Final agreement took several sessions to resolve, however, agreement for damages was achieved. 

Lessons to be learnt

Companies must train their staff of their obligations under the Trade Practices Act, in particular the 'Misleading & Deceptive' and 'Unconscionable conduct' provisions. 

You should consider mediation at the outset of any dispute. Mediation can be used in conjunction with litigation or other forms of dispute resolution. If you have to seek financial compensation ADR will not be appropriate. 

NOTE* (1) Although none of the Acts specifically provides for ADR, this does not preclude resort to ADR in appropriate matters, if the other party agrees.

NOTE (2) For more detailed information refer to 'Small Business & the Trade Practices Act' booklet (1997) obtainable from ACCC offices. 

NOTE (3) The terms and conditions of any contract should be examined to see if they provide for ADR procedures to be followed.