Following a recent Federal Court decision, the scope of ‘unconscionable conduct’ under Australian Consumer Law (‘ACL’) has been expanded. The recent decision in the Quantum Housing case establishes wider scope for a party to claim in commercial disputes that they were the subject of unconscionable conduct.
Why is this important for Australian Businesses?
Businesses should take care not to engage in behavior that may be characterised as acting in bad faith, involving commercial bullying or pressure, taking strong advantage of a superior bargaining position, or using market power to extract benefits, especially undisclosed benefits – even if your customer or other party does not have a clear disadvantage.
The Australian Competition and Consumer Commission (ACCC) and Australian Securities and Investments Commission (ASIC) will continue to be diligent in enforcement action against businesses which engage in unconscionable conduct.
What conduct may be defined as ‘unconscionable’
The Full Court in Quantum Housing decision held that, while statutory unconscionability may often involve a pre-existing vulnerability or disadvantage on the part of the victim, it does not require such vulnerability or disadvantage to exist or be exploited.
Rather, statutory unconscionability only requires a finding that conduct is “against or offends conscience” informed by values and norms of acceptable commercial behaviour, such as honesty, fairness when dealing with customers, and performance of bargains and promises freely made.
In particular, where the party engaging in unconscionable conduct receives a benefit for its actions, particularly if that benefit is unknown or not made clear to the party impacted by the conduct, then a Court may consider such conduct to be more egregious.
The Court found that Quantum Housing engaged in unconscionable conduct by pressuring investors with rental dwellings in the National Rental Affordability Scheme (NRAS) to switch property managers to Quantum Housing-approved property managers, without needing to find that Quantum Housing exploited any particular vulnerability, disability or disadvantage of those investors.
Helpfully, the Court in Quantum Housing gave the following examples of business conduct that might contribute a finding of unconscionable conduct; this being conduct which:
- Is systematically dishonest
- Is entirely in bad faith in undermining a bargain
- Involves misrepresentation, commercial bullying or pressure and sharp practice
- Is contrary to an industry code
- Involves using significant market power in a way to extract an undisclosed benefit that will harm others who are commercially related to the counterparty.
It must be remembered that these examples are not definitive nor exhaustive, but can be taken as a useful reference for determining when the broader interpretation of unconscionable conduct may apply.
Unconscionable conduct prohibition under Australian Consumer Law
There are two prohibitions against unconscionable conduct under the Australian Consumer Law (‘ACL’):
- Unconscionable conduct within the doctrine of the “unwritten law” (section 20 ACL), which draws on equitable and common law principles; and
- Statutory unconscionable conduct (section 21 ACL), being conduct in connection with the supply or acquisition of goods or services which is “in all the circumstances” unconscionable. This doctrine of unconscionability has been described by the Federal Court as a “statutory standard to be developed judicially”,5 and was relied upon by the ACCC in order to establish unconscionable conduct in Quantum Housing.
Quantum Housing was found to be in breach of section 21 of the ACL.
Although the doctrine of unconscionable conduct has a long history in equity and common law, there is no definition of ‘unconscionable conduct’ under the Australian Consumer Law.
The general approach has been to interpret it to mean “conduct that is so far outside norms of acceptable commercial behaviour as to warrant condemnation as conduct that is offensive to conscience”. In determining whether such conduct exists Courts would consider all the circumstances at hand.
Section 22 of the Australian Consumer Law sets out a list of non-exhaustive factors that may be relevant to determining whether conduct is unconscionable under section 21. These include the extent to which:
- the parties acted in good faith
- the relative strength of each party’s bargaining position
- whether the customer was required to comply with conditions not reasonably necessary to protect the supplier’s legitimate interests
- whether the conduct involved any undue influence or pressure or unfair tactics
- and the extent to which the supplier unreasonably failed to make certain disclosures regarding risks to the customer’s interests.
The doctrine of unconscionable conduct in equity and common does not limit the scope of the provisions of the ACL. Rather, these provisions are applied by Courts on their own terms.
The Quantum Housing decision clarified the extent to which statutory unconscionable conduct is broader than the conduct defined in Section 20 of the ACL. It was no longer necessary to find that a party had taken advantage of a disadvantage of an inherent vulnerability in the other party.
Risks arising from unconscionable conduct
A party that engages in unconscionable conduct may be subject to significant penalties including criminal liability.
The maximum penalty that can be imposed for unconscionable conduct is:
- $500,000 for individuals; or
- Up to $10 million or three times the benefit received; or
- 10% of its annual turnover (whichever is greater), in the case of a corporation.
Potential for further clarification
The Quantum Housing decision represents the current state of the law and should be the reference point for businesses engaging with customers. It is likely that there will be further consideration of the scope of statutory unconscionable conduct by the Courts.
In the meantime, plaintiffs arguing unconscionable conduct may seek to rely on the Quantum Housing case to give additional weight to their claim.
Key takeaways and actions to consider
- A party claiming unconscionable conduct does not need to have suffered from any inherent vulnerability or disadvantage for the claim to be made.
- A wider number of claims may be seen arising from reliance on the Quantum Housing decision.
- Businesses may need to re-evaluate certain practices to ensure they do not engage in conduct which may leave them open to a claim of unconscionable conduct. This is not straightforward and the facts of the relationship with customers or counterparties and the specific conduct will be critical.
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How can we help
For more information on the Australian Consumer Law or this Update, please contact Nexus Group Principal Colin Miller on email@example.com
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This publication is © Nexus Law Group and is for general guidance only.
Legal advice should be sought before taking action in relation to any specific issues.