What is Unconscionable Conduct (under the Australian Consumer Law)?

Introduction

There are 2 kinds of unconscionable conduct under the Australian Consumer Law (ACL):

  • Section 20 of the ACL, which prohibits unconscionable conduct, in trade or commerce, within the meaning of the common law and equitable principles recognised by the Courts.

This kind of unconscionable conduct essentially involves unconscientious advantage being taken by one party of some disabling condition or circumstance that seriously affects the ability of the other party to make a rational judgment regarding his or best interests.  The purpose is to ensure that it is just, fair and reasonable for the stronger party to retain the benefit of the disputed transaction.

  • Section 21 of the ACL, which prohibits unconscionable conduct, in trade or commerce, in connection with the supply (or possible supply) and acquisition (or possible acquisition) of goods or services to and from persons, including corporations.

This kind of unconscionable conduct is assessed against:

– section 22 of the ACL, which provides that in determining whether there has been unconscionable conduct, the Court may have regard to certain factors (see below)

– legal principles developed by the Courts regarding the meaning of unconscionable conduct in relation to section 21 of the ACL (see below).

Section 22 of the ACL

The factors the Court may have regard to, in determining whether a supplier has contravened section 21 of the ACL are:

(a)     the relative strengths of the bargaining positions of the parties

(b)     whether, as a result of conduct engaged in by the supplier, the customer was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the supplier

(c)     whether the customer was able to understand any documents relating to the supply or possible supply of the goods or services

(d)     whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the customer or a person acting on behalf of the customer by the supplier or a person acting on behalf of the supplier in relation to the supply or possible supply of the goods or services

(e)     the amount for which, and the circumstances under which, the customer could have acquired identical or equivalent goods or services from a person other than the supplier

(f)      the extent to which the supplier’s conduct towards the customer was consistent with the supplier’s conduct in similar transactions between the supplier and other like customers

(g)     the requirements of any applicable industry code

(h)     the requirements of any other industry code, if the customer acted on the reasonable belief that the supplier would comply with that code

(i)      the extent to which the supplier unreasonably failed to disclose to the customer:

(1)     any intended conduct of the supplier that might affect the interests of the customer

(2)     any risks to the customer arising from the supplier’s intended conduct (being risks that the supplier should have foreseen would not be apparent to the customer)

(j)      if there is a contract between the supplier and the customer for the supply of the goods or services:

(1)     the extent to which the supplier was willing to negotiate the terms and conditions of the contract with the customer

(2)     the terms and conditions of the contract

(3)     the conduct of the supplier and the customer in complying with the terms and conditions of the contract

(4)     any conduct that the supplier or the customer engaged in, in connection with their commercial relationship, after they entered into the contract

(k)     without limiting paragraph (j), whether the supplier has a contractual right to vary unilaterally a term or condition of a contract between the supplier and the customer for the supply of the goods or services

(l)      the extent to which the supplier and the customer acted in good faith.

Identical provisions apply to customers, in connection with the acquisition or possible acquisition of goods or services.

Note that the Courts have found that it is wrong to focus on one or two of the matters listed above, at the expense of others.

Legal principles in relation to section 21 of the ACL

The following legal principles are distilled from the decision of the Full Federal Court in Colin R Price & Associates Pty Ltd v Four Oaks Pty Ltd [2017] FCAFC 75 (12 May 2017) at [51] to [57]:

  • it must be emphasised that faithfulness or fidelity to a bargain freely and fairly made should be seen as a central aspect of legal policy and commercial law. This binds commerce, engenders trust, and is a core element of decency in commerce
  • however there is a recognised societal expectation that, even in the competitive world of business, people acting in trade or commerce must be dealt with honestly, fairly and without deception or unfair pressure
  • but an element of hardship or unfairness in the terms of a transaction, or in the manner of its performance is insufficient, by itself, for a finding of unconscionability
  • and it is not necessary to show a “high level of moral obloquy”, such as dishonesty, for a finding of unconscionability
  • the evaluation of alleged unconscionable conduct does not involve individual moral opinion (ie a Judge’s opinion) that such conduct has occurred
  • however the proper evaluation of alleged unconscionable conduct includes (in addition to the factors set out in section 22 of the ACL above):

– a recognition of the deep and abiding requirement of honesty in behaviour

– a rejection of trickery or sharp practice

– fairness when dealing with consumers

– the central importance of the faithful performance of bargains and promises freely made

– the protection of those whose vulnerability as to the protection of their own interests places them in a position that calls for a just legal system to respond for their protection, especially from those who would victimise, predate or take advantage

– a recognition that inequality of bargaining power can (but not always) be used in a way that is contrary to fair dealing or conscience

– the importance of a reasonable degree of certainty in commercial transactions

– the reversibility of enrichments unjustly received

– the importance of behaviour in a business and consumer context that exhibits good faith and fair dealing

– a close examination of all the facts and circumstances, in order to assess whether the alleged unconscionable conduct is contrary to the standard of business conscience prescribed by Parliament, being a standard which reflects accepted and acceptable community values as to proper business practices.

Remedies

A person who suffers loss or damage because of unconscionable conduct in contravention of sections 20 or 21 of the ACL, may:

  • seek damages under section 236 of the ACL against the person who engaged in the unconscionable conduct, or against any person involved in the contravention
  • seek remedial orders for compensation under section 237 of the ACL.

Please contact me if you believe that you have suffered loss or damage because of unconscionable conduct.

Greg Carter Litigation Lawyer Perth

“For unconscionable conduct in relation to retail shop leases in Western Australia, please click here.”