When is the conduct of a business toward one or more of its clients deemed to be unconscionable? This is a question that has needed to be addressed repeatedly over time as cases involving alleged misconduct by businesses have been brought before courts across Australia.
By Gary Anders
Unconscionable conduct is any conduct that is contrary to what the law would deem to be “in good conscience” and would prompt a course of action calling for a remedy.
A recent judgment by the Full Court of the Federal Court on a case brought by the Australian Competition and Consumer Commission (ACCC) against Quantum Housing Group has provided some important clarification around what constitutes unconscionable conduct by a business.
The court found in favour of the ACCC, ruling that Quantum had made false or misleading representations and engaged in systemic unconscionable conduct.
As well as pressuring investors in the National Rental Affordability Scheme to terminate agreements with existing property managers and engage a property manager approved by Quantum, the company failed to tell investors it had commercial links with the managers it recommended.
Proof of conduct
Importantly, the Federal Court ruled that for conduct to be unconscionable under Australian laws, it is not necessary to prove the business engaging in the conduct has exploited a particular disadvantage or vulnerability of the consumers or small businesses that have been affected.
“This is an extremely important decision for all Australian consumers and businesses,” says ACCC chair Rod Sims.
“The Full Court has confirmed that the correct approach to assessing statutory unconscionability is to focus on the conduct and assess whether it is a sufficient departure from the norms of acceptable commercial behaviour as to be against conscience or to offend conscience.
“Because this decision makes it clear that it is not necessary to demonstrate exploitation of vulnerability, it extends the reach of the statutory unconscionable conduct prohibition, so that it will protect more consumers and small businesses against egregious conduct by corporations.”
Former ACCC head and professorial fellow with the University of Melbourne, Allan Fels AO, says that, historically, cases of unconscionable conduct have hinged on whether businesses have exploited consumers that were disadvantaged in some way and who had been given no choice when entering contracts.
“The courts have been reasonable, but really middle of the road,” Fels says.
“In this latest case, it comes back to inherent unfairness and makes it clear that unconscionable conduct is pretty broad.”
Ongoing legal uncertainty
Professor Jeannie Paterson, who specialises in contracts, consumer protection and consumer credit law at the University of Melbourne, says there is still legal uncertainty around unconscionable conduct.
“The decision, in my view, just highlighted the ongoing uncertainty about unconscionable conduct, because the view presented in the case has been one that we’ve already seen from the Full Federal Court in the past,” she says.
“I think it’s a very sensible view, but it’s not a view that’s been taken by all courts, and it’s not a view that as yet has been confirmed by the High Court.
“We’re still in a situation where we don’t really know what the rules are going to be and, therefore, it’s a situation of great uncertainty for everybody, unfortunately.”
Fels says that overall, courts have been wary when making judgments on unconscionable conduct because they often involve difficult exercises of judgment.
The ACCC is in the process of recommending that a new provision be introduced into Australian Consumer Law, which would be a prohibition on unfair commercial practices.
“Floating around in the background is the question of whether you should just have ‘unfair’ as a test,” Fels says.
“The problem is that ‘unfair’ can cover a multitude of situations in a daily sense. So that’s opening the door too wide, because every contract can be questioned.”
Implications for business
Unconscionable conduct cases typically revolve around some form of exploitation of disadvantaged customers.
The term “disadvantaged” can encompass individuals lacking mental or educational capacity who are coerced into making decisions, and even those with limited English language skills.
Paterson says it is important for businesses to be mindful of their conduct toward customers.
“For people who are doing business, really what it comes down to is finding out a little bit about your customer and making sure they’re in a position to understand and act upon any advice that they’re given in a way that improves their overall outcome,” she says.
“And if they are hamstrung in some way in protecting their own interests – perhaps because the information is complex and they are using English as a second language, are dealing with other complex financial problems or are acting under some disability that impedes their cognitive capacity – more care needs to be taken. Obviously, bullying or trickery should be avoided.
“It may also be important for the customer to have an opportunity to consult a trusted person to make sure they understand the transaction they’re thinking about entering into.”