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29 Mar 2012

ACCC to home in on unconscionable conduct

by Adrian Kuti, Claire Cogswell

Businesses beware – unconscionable conduct under the Australian Consumer Law is still somewhat vague as a concept, and the ACCC is looking for test cases to clarify it.

Businesses should exercise caution as ACCC identifies unconscionable conduct as an "area for attention", opening the door for test cases on the newly amended ACL provisions.

The warning came during a speech to the Australia Israel Chamber of Commerce on 20 February in which ACCC Chairman Rod Sims outlined, amongst other things, the ACCC's focus on protecting vulnerable consumers and small businesses.

While acknowledging the task of proving unconscionable conduct is indeed a "high hurdle", Mr Sims emphasised the ACCC would not hesitate to take action when it occurred.

What's behind this?

The ACCC's focus on protecting vulnerable consumers and small businesses from unconscionable conduct is also reflected in the ACCC's revised compliance and enforcement policy released on the same day.

Perhaps unsurprisingly, these comments come soon after the December 2011 commencement of the Competition and Consumer Legislation Amendment Act 2011, which made clarifying amendments to the unconscionable conduct provisions in the Australian Consumer Law (ACL).

The timing of Mr Sims' speech was unlikely to have been a coincidence, but more an indicator that the ACCC is serious about scrutinising this area.

Watch this space: action to come?

Prior to the amendments, the ACL prohibited conduct that would be considered unconscionable under the common law, as well as conduct in connection with the supply of goods or services that would, in all the circumstances, be considered unconscionable by a court having regard to a non-exhaustive list of factors.

The newly amended prohibition on unconscionable conduct now makes it clear that the statutory prohibition against unconscionable conduct is not limited by the common law concept of unconscionable conduct.

An opportunity for potential test cases? Quite possibly…

The amendments also make clear that inherent systems or patterns of such conduct is prohibited, whether or not an individual is disadvantaged by the alleged behaviour. The focus, therefore, is on conduct which may offend good conscience, whether or not a "victim" is involved.

While purpose is a key consideration for many prohibitions under the ACL and Competition and Consumer Act more broadly, under the amended law, purpose will have little or no role in the ACCC's decision to take action against a person or company it considers has acted unconscionably.

It is clear from Mr Sims' comments that the ACCC intends to take full advantage of the amended unconscionable conduct provisions in the ACL, and will not show reluctance to strike where appropriate to protect vulnerable consumers and small businesses.

What is unconscionable conduct?

Despite the recent amendments, there is still no specific definition of "unconscionable conduct" in the ACL.

At a broad level, for conduct to be unconscionable, it must be irreconcilable with what is right or reasonable and show no regard for conscience. A example is taking advantage of a party's weaker bargaining position or lack of knowledge or expertise in the subject matter of a negotiation.

Importantly, there is now no distinction between consumer and business transactions in the factors the court may have regard to for the purpose of determining whether conduct is unconscionable.

Those factors include (amongst others):

  • the bargaining position of the customer;
  • whether any terms go beyond what is reasonably necessary to protect the legitimate interests of the party that benefits from those terms;
  • whether the customer was able to understand documents relating to the supply of goods or services;
  • the existence of any undue influence or pressure;
  • the fairness of the price having regard to typical prices for identical or equivalent goods or services from other suppliers;
  • the consistency of a party's conduct compared with that party's conduct in other similar transactions;
  • the requirements of any industry code (eg. in the context of franchising);
  • the extent of, or willingness, of parties to negotiate terms of a contract;
  • whether a party has a contractual right to unilaterally vary a term or condition; and
  • whether the parties acted in good faith.

Is your business at risk?

At this point it is difficult to predict specific areas or industries more susceptible to ACCC scrutiny. One area already identified by the ACCC is door-to-door sales, particularly in relation to the elderly, the house-bound or other vulnerable consumers.

Another current area of focus for the ACCC is supermarkets and other concentrated industry sectors in which allegations of bullying tactics commonly arise.

It may nevertheless be difficult for small suppliers to complain about demands by large retailers, such as sudden price reductions, lack of commitment and rights of return. Could such conduct go beyond the realms of robust commercial dealings or the mere notion of unfairness, to amount to unconscionable conduct that shows no regard for conscience and is irreconcilable with what is right or reasonable?

Similarly, unconscionable conduct allegations may involve a breakdown of a longstanding relationship between franchisor and franchisees, or between landlord and small business tenant – where contractual issues might be at the heart of the dispute, and rights and wrongs have been committed by both parties. In these circumstances, it can be difficult to ascertain where the truth lies when unconscionable conduct is alleged.

What may be considered to be unconscionable conduct has by no means been settled by the recent amendments to the law, and it is clear that the ACCC is actively looking for test cases. With penalties of up to $1.1m for a body corporate and $220,000 for other persons applicable per breach, businesses should exercise caution in this area.

 

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.