Federal Court ruling provides clarification on statutory unconscionable conduct
The Australian Small Business and Family Enterprise Ombudsman Bruce Billson has welcomed the landmark decision of the Full Federal Court to make ‘a sufficient departure from the norms of acceptable commercial behaviour’ a test of whether conduct is ‘unconscionable’ under the Australian law.
“This is a great day for Australian small businesses seeking protection from unconscionable conduct that can harm enterprises and livelihoods,’ Mr Billson says.
“The decision ensures egregious commercial conduct can be captured by the unconscionable conduct provisions under the Australian Consumer Law without having to prove that the harmed small business or consumer has a special disadvantage or vulnerability that was exploited.
“I welcome the Full Court confirmation that conduct may be found to be unconscionable as a result of deviations from the norms of acceptable commercial behaviour, even where there has not been a special disadvantage or vulnerability that was exploited.
“This should reassure smaller businesses that remedies are available for the harm caused by the unconscionable conduct of a counterparty are available and that fair and reasonable commercial dealings support Australian commerce, even where a larger, more powerful corporation is involved.
Mr Billson congratulated the ACCC and its chair, Rod Sims, for appealing an earlier Federal Court decision that required that a business could only be found to have acted ‘unconscionably’ under the Australian Consumer Law and other similar laws, if it had exploited some disadvantage or vulnerability on the part of the consumers or small businesses affected.
“While the exploitation of a disadvantage or vulnerability is an important criteria for establishing if a business has acted ‘unconscionably’, egregious conduct that causes harm to another business cannot be acceptable purely by the absence of this specific form of exploitation,” says Mr Billson.
“We look forward to seeing further protections for small businesses through changes to the unfair contract terms legislation in the near future.”
ACCC Chair Rod Sims said it was an extremely important decision for all Australian consumers and businesses.
“The Full Court has made clear that for conduct to be held to be ‘unconscionable’ under the Australian Consumer Law and other similar laws, it is not necessary to establish that the business engaging in the conduct has exploited some disadvantage or vulnerability on the part of the consumers or small businesses affected, although this may often be the case.”
“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,” Mr Sims said.
“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.”
In its proceedings against Quantum, the ACCC alleged that Quantum made false or misleading representations and engaged in systemic unconscionable conduct by pressuring investors in the NRAS to terminate agreements with their existing property managers and engage a property manager approved by Quantum. Quantum failed to tell investors that it had commercial links with the property managers it recommended.
The ACCC also alleged that Quantum’s sole director, Ms Cheryl Howe, was knowingly concerned in this conduct. Quantum and Ms Howe subsequently admitted liability for both false or misleading representations and unconscionable conduct.
In June 2020, the Court declared that Quantum had made false or misleading representations, but was not satisfied that its conduct was within the statutory notion of unconscionable conduct because it had not been demonstrated that the investors were at a disadvantage or had some vulnerability which had been exploited by Quantum.
He ordered Quantum to pay $700,000 in penalties and Ms Howe to pay a penalty of $50,000 for being knowingly concerned in the false or misleading conduct. He also made an order banning her from managing a corporation for three years.
The ACCC appealed from the trial judge’s decision to clarify whether special disadvantage was necessary to establish unconscionable conduct under the Australian Consumer Law. The ACCC did not appeal the penalty amounts, and Quantum and Ms Howe elected not to participate in the appeal. A contradictor was appointed to assist the Court by arguing against the ACCC’s appeal.
