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Unconscionable Conduct

Unconscionable conduct deals with transactions between dominant and weaker parties; it therefore overlaps with duress and undue influence. Unconscionable conduct is prohibited both in equity and, more recently, by statute.

Unconscionable Conduct in Equity

Equity intervenes where one party has taken advantage of a 'special disability' (most commonly age, illiteracy, lack of education or a combination of factors) held by the other. The resulting transaction must normally also be harsh and oppressive to the weaker party. Where established the weaker party may choose to avoid the transaction.

Statutory Unconscionable Conduct

The Australian Consumer Law introduced nationally consistent prohibitions on unconscionable conduct (Part 2-2 of the ACL). The first of these prohibitions entrenches into statute the equitable doctrine of unconscionable conduct, thereby extending the range of remedies available to parties affected by unconscionable conduct. The second prohibition extends the concept of unconscionability beyond that recognized in equity and can be relied upon by all persons, other than listed corporations, who acquire or supply goods or services in trade or commerce..

Section 20 of the ACL (which is in identical terms as its predecessor, s 51AA of the Trade Practices Act) prohibits unconscionability engaged in by a corporation 'within the meaning of the unwritten law' (meaning the equitable doctrine of unconscionable conduct). To prevent overlap , s 20 will not apply where s 21 applies.

Section 20(1)
A person must not, in trade or commerce, engage in conduct that is unconscionable within the meaning of the unwritten law, from time to time.
Note: A pecuniary penalty may be imposed for a contravention of this subsection.

Section 21 prohibits unconscionable conduct in connection with the supply or acquisition of goods or services by or form a person (other than a listed public company).  It is not intended to be ‘limited by the unwritten law relating to unconscionable conduct’ and relevant factors extend beyond 'consideration of the circumstances relating to formation of the contract' to the terms of the contract themselves (substantive unconscionable conduct). Section 22 sets out a range of factors a court may consider when determining whether conduct is unconscionable. 

21  Unconscionable conduct in connection with goods or services
(1)  A person must not, in trade or commerce, in connection with:

(a)  the supply or possible supply of goods or services to a person (other than a listed public company); or
(b)  the acquisition or possible acquisition of goods or services from a person (other than a listed public company);
engage in conduct that is, in all the circumstances, unconscionable.

(2)  This section does not apply to conduct that is engaged in only because the person engaging in the conduct:

(a)  institutes legal proceedings in relation to the supply or possible supply, or in relation to the acquisition or possible acquisition; or
(b)  refers to arbitration a dispute or claim in relation to the supply or possible supply, or in relation to the acquisition or possible acquisition.

(3)  For the purpose of determining whether a person has contravened subsection (1):

(a)  the court must not have regard to any circumstances that were not reasonably foreseeable at the time of the alleged contravention; and
(b)  the court may have regard to conduct engaged in, or circumstances existing, before the commencement of this section.

(4)  It is the intention of the Parliament that:

(a)  this section is not limited by the unwritten law relating to unconscionable conduct; and
(b)  this section is capable of applying to a system of conduct or pattern of behaviour, whether or not a particular individual is identified as having been disadvantaged by the conduct or behaviour; and
(c)  in considering whether conduct to which a contract relates is unconscionable, a court’s consideration of the contract may include consideration of:
(i)  the terms of the contract; and
(ii)  the manner in which and the extent to which the contract is carried out;
and is not limited to consideration of the circumstances relating to formation of the contract.

22  Matters the court may have regard to for the purposes of section 21

(1)  Without limiting the matters to which the court may have regard for the purpose of determining whether a person (the supplier) has contravened section 21 in connection with the supply or possible supply of goods or services to a person (the customer), the court may have regard to:

(a)  the relative strengths of the bargaining positions of the supplier and the customer; and
(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; and
(c)  whether the customer was able to understand any documents relating to the supply or possible supply of the goods or services; and
(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; and
(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; and
(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; and
(g)  the requirements of any applicable industry code; and
(h)  the requirements of any other industry code, if the customer acted on the reasonable belief that the supplier would comply with that code; and
(i)  the extent to which the supplier unreasonably failed to disclose to the customer:
(i)  any intended conduct of the supplier that might affect the interests of the customer; and
(ii)  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); and
(j)  if there is a contract between the supplier and the customer for the supply of the goods or services:
(i)  the extent to which the supplier was willing to negotiate the terms and conditions of the contract with the customer; and
(ii)  the terms and conditions of the contract; and
(iii)  the conduct of the supplier and the customer in complying with the terms and conditions of the contract; and
(iv)  any conduct that the supplier or the customer engaged in, in connection with their commercial relationship, after they entered into the contract; and
(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; and
(l)  the extent to which the supplier and the customer acted in good faith.

(2)  Without limiting the matters to which the court may have regard for the purpose of determining whether a person (the acquirer) has contravened section 21 in connection with the acquisition or possible acquisition of goods or services from a person (the supplier), the court may have regard to:

(a)  the relative strengths of the bargaining positions of the acquirer and the supplier; and
(b)  whether, as a result of conduct engaged in by the acquirer, the supplier was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the acquirer; and
(c)  whether the supplier was able to understand any documents relating to the acquisition or possible acquisition of the goods or services; and
(d)  whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the supplier or a person acting on behalf of the supplier by the acquirer or a person acting on behalf of the acquirer in relation to the acquisition or possible acquisition of the goods or services; and
(e)  the amount for which, and the circumstances in which, the supplier could have supplied identical or equivalent goods or services to a person other than the acquirer; and
(f)  the extent to which the acquirer’s conduct towards the supplier was consistent with the acquirer’s conduct in similar transactions between the acquirer and other like suppliers; and
(g)  the requirements of any applicable industry code; and
(h)  the requirements of any other industry code, if the supplier acted on the reasonable belief that the acquirer would comply with that code; and
(i)  the extent to which the acquirer unreasonably failed to disclose to the supplier:
(i)  any intended conduct of the acquirer that might affect the interests of the supplier; and
(ii)  any risks to the supplier arising from the acquirer’s intended conduct (being risks that the acquirer should have foreseen would not be apparent to the supplier); and
(j)  if there is a contract between the acquirer and the supplier for the acquisition of the goods or services:
(i)  the extent to which the acquirer was willing to negotiate the terms and conditions of the contract with the supplier; and
(ii)  the terms and conditions of the contract; and
(iii)  the conduct of the acquirer and the supplier in complying with the terms and conditions of the contract; and
(iv)  any conduct that the acquirer or the supplier engaged in, in connection with their commercial relationship, after they entered into the contract; and
(k)  without limiting paragraph (j), whether the acquirer has a contractual right to vary unilaterally a term or condition of a contract between the acquirer and the supplier for the acquisition of the goods or services; and
(l)  the extent to which the acquirer and the supplier acted in good faith.

The ACCC recently (4 March 2013) appealed 'a decision by Justice Jessup in the Federal Court dismissing the ACCC’s allegations that Lux Distributors Pty Ltd (Lux) engaged in unconscionable conduct in relation to the sale of vacuum cleaners to five consumers in contravention of section 51AB of the Trade Practices Act 1974 and section 21 of the Australian Consumer Law.' View press release. This should produce some useful High Court authority on the interpretation of the statutory unconscionable conduct provisions

 

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