Mediation & Trade Practices Disputes

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.

A Case Study – Trade Practices

Background

The case revolves around the business dealings of a small family business and a financial institution.  Paul and Tina Roma (not their real names) immigrated 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.  However, 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 that it was not prepared to provide the finance.  The property was now not earning any income and without the completion of the renovations was not able to fund the current level of debt.  On this basis the bank took steps 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 funds to purchase the property.  The bank did not advise that there was a problem with the additional funding until late in the process.  Paul had spent considerable time and money 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 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 that he would only recover a substantial financial loss by taking legal action for damages resulting from the actions of the bank.  The original case found in the bank’s favour 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 which each believed was appropriate.  The judgment of the Court of Appeal had established a date from which damages would commence and the subsequent negotiation revolved around the elements which made up the total value of Paul Roma’s loss including how to assess the value of such elements as interest rates, rent lost 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 place over several mediated sessions to resolve, however, agreement on damages was achieved.

Lessons to be learnt

Companies must train their staff of their obligations under the Trade Practices Act, in particular with regard to the ‘Misleading & Deceptive’ and ‘Unconscionable conduct’ provisions of the Act.  Mediation is an early dispute resolution process and to achieve the best results, parties should be encouraged to consider mediation at the outset of their dispute.  Mediation is also a flexible process and can be used in conjunction with litigation or other forms of ADR.  Litigation is not only very time consuming but is also extremely expensive.  Before commencing to litigate parties should always consider the benefits a a mediated outcome.

Contact Mediate Today to learn more about mediating an outcome to your dispute – call 1300 760 225.