Litigation and Dispute Resolution

Be careful what you caveat

27 October, 2021

In the recent decision of Australian Competition and Consumer Commission v Quantum Housing Group Pty Ltd [2021] FCAFC 40 the Full Federal Court has clarified that vulnerability is not essential to establishing a claim of statutory unconscionable conduct. The Full Court upheld an appeal by the Australian Competition and Consumer Commission (ACCC), confirming that the correct approach to assessing statutory unconscionability is to focus on the conduct of the parties and whether this has involved a sufficient departure from norms of acceptable behaviour. As a result of this decision, a wider range of consumers and businesses will have the protection of the remedies for statutory unconscionability under the Australian Consumer Law (ACL).

What’s in a name? Demystifying the concept of unconscionability

The concept of unconscionability arises in a number of contexts in the Australian legal system. Generally speaking, unconscionable conduct is understood to involve conduct which is so harsh it goes against good conscience, typically occurring in transactions which involve a dominant party and a weaker party. The contexts in which unconscionability arises under Australian law includes:

1. Unconscionable conduct under the general law

At general law, unconscionable conduct is a species of vitiating factor, which affects the consent of a party when entering into a contract. This follows the principle that equity will intervene where a party has taken advantage of the ‘special disadvantage’ of the other party and the resulting transaction is harsh or oppressive to the weaker party. The presence of unconscionable conduct as a vitiating factor will render a contract voidable and allow a party to approach the court for an order to set the contract aside.

2. Unconscionable conduct under the ACL

The ACL contains prohibitions on unconscionable conduct by persons in trade or commerce. Section 20 of the ACL contains a prohibition on unconscionable conduct within the meaning of the general law (see above), thus extending the remedies available under the ACL to the type of conduct captured by the general law principle. In addition, section 21 of the ACL operates as a more specific prohibition against unconscionable conduct in connection with the supply or acquisition of goods or services. Section 22 of the ACL sets out a number of factors to which the Court may have regard when determining whether an individual or a corporation has contravened section 21. Section 21 of the ACL is commonly referred to as “statutory unconscionability” and is the key provision in issue in the decision in Australian Competition and Consumer Commission v Quantum Housing Group Pty Ltd [2021] FCAFC 40.

3. Unconscionability within the meaning of the unjust contract legislation

The Contracts Review Act 1980 (NSW) grants the New South Wales courts with the power to set aside or vary contracts (or provisions of contracts) that are “unjust” in the circumstances. “Unjust” is defined under the Contracts Review Act 1980 (NSW) to include “unconscionable, harsh or oppressive”. Section 9 of the Contracts Review Act 1980 (NSW) sets out a non-exhaustive list of the factors to which the Court must have regard, including where the effect of the contract and the circumstances in which the contract was made make it unjust.

4. Unconscionability in the doctrine of estoppel

Unconscionability is also a key aspect of the doctrine of estoppel. Estoppel is a form of equitable relief that comes into play in circumstances where it would be unconscionable for a party to resile from an assumption that it induced a counterparty to adopt a position to their detriment.

Factual background to the case

Quantum Housing Group Pty Ltd (QHG) is an approved participant of the National Rental Affordability Scheme (NRAS). The ACCC alleged that in 2017 and 2018 QHG had pressured property investors participating in the NRAS to terminate arrangements with their existing property managers and to retain property managers recommended or approved by QHG, with whom QHG was also commercially involved. At first instance QHG was fined $700,000 and its director Cheryl Howe was fined $50,000, with the Federal Court finding that they had falsely represented to investors that the real estate agents contracted to manage their properties under the NRAS were required to sign an agreement with QHG. The Court found that this conduct was misleading and deceptive in contravention of the ACL, but held it was not unconscionable conduct because there was no evidence that QHG’s investors were vulnerable or in a position of disadvantage.

Findings on appeal

Following an appeal by the ACCC, the Full Federal Court overturned the finding by the Federal Court and held that unconscionability is not limited to actions which are considered to be a “predation on vulnerability, taking advantage of disability or disadvantage and victimisation”. The Full Court noted that these behaviours do not exhaust the meaning of “against conscience”. The Full Court explained that statutory unconscionability is “not limited to one kind of conduct that is against or offends conscience” and can also include “systematic dishonesty, bad faith bargaining and commercial bullying”. Crucially, the Full Court held that the existence of a pre-existing special disadvantage, disability or vulnerability is not an element of statutory unconscionability. Rather, the question should always be whether the impugned conduct departs from norms of acceptable commercial behaviour and is against or offends conscience.

The significance of this decision is that it has clarified that statutory unconscionability no longer requires the party engaging in the impugned conduct to have exploited some disadvantage or vulnerability on the part of the other party. In making this clarification, the Full Court has confirmed that the protections of the statutory unconscionable conduct provisions extend to a wider group of consumers and businesses than those that are protected under the general law.

Key takeaways

  • The Full Federal Court has rejected a narrow interpretation of statutory unconscionable conduct by clarifying that special disadvantage or vulnerability by the “weaker party” is not required.
  • The types of conduct caught by the statutory unconscionability provisions are not exhaustive – they can include systematic dishonesty, bad faith bargaining and commercial bullying.
  • The decision means that a wider range of consumers and businesses will benefit from the protections of the statutory unconscionability provisions of the ACL.

For more information, please watch our short video on establishing a claim of statutory unconscionable conduct here.

McCabes Litigation and Dispute Resolution team is experienced in advising clients on competition and consumer law. Please contact us if you require advice on any matters covered by this article.

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