Professor Bob Baxt AO Emeritus Partner at Herbert Smith Freehills and former Dean of the Monash Law Faculty (1980-88)
When the Australian Parliament enacted s 51AA Trade Practices Act 1974 (Cth) (the TPA), and introduced a remedy based on ‘unconscionable conduct’, it was felt by many that Parliament was merely creating a statutory regime to parallel the approach taken by the courts. The High Court of Australia had seemed to adequately sum up the common law approach to unconscionable conduct in Commercial Bank of Australia Limited v Amadio (1983) 151 CLR 447.
In the view of others, Parliament was in fact doing more than simply codifying a common law principle developed over many hundreds of years. It was sending a clear message that the law of the land should provide appropriate remedies to consumers where the conduct was, in the eyes of the law, unconscionable.
Regrettably, Parliament chose not to define the concept of unconscionable conduct. It could have included references to the common law history to indicate how it wanted the courts to deal with the remedy. This arguably would have clarified the law for a regulator such as the then Trade Practices Commission (TPC), (now the Australian Competition and Consumer Commission (ACCC)), and the Australian Securities and Investments Commission (ASIC), as well as civil litigants. It would have clarified when appropriate statutory relief could be obtained by consumers who had been taken advantage of in a contractual/business scenario, where the courts could identify (or at least find it reasonable to identify) the notion of unconscionable conduct.
When Parliament decided to further "muddy" the waters of contract law (as some would describe the introduction of the unconscionable conduct regime for the benefit of small business in the TPA), it was arguably going much too far. The proposition put to me as chairman of the then TPC and to my fellow Commissioners was that we should endorse the concept of a small business unconscionable conduct regime. This concerned us because it would damage the clear and underlying principles of the TPA, which were geared towards the protection of the competitive process and not individual competitors. The proposition that competition, through the operation of a viable competitive process, was the key element under the legislation had been clearly identified by the High Court in the case of Queensland Wire Industries Pty Ltd v Broken Hill Pty Co Ltd (1989) 167 CLR 177.
At the TPC, we were concerned with the suggested inclusion of small business unconscionable conduct scenarios in the legislation as this arguably would change the dynamic of the legislation. Despite our stance the Government introduced s 51AC. It is now part of the Australian Consumer Law in sections 20 and 21.
In my view it is inappropriate for the small business unconscionable conduct legislation to be included in the competition statute. I have put that view to the Harper Panel, which is undertaking a ‘root and branch’ review of competition law and policy.
Why is it that I say that the unconscionable conduct provisions, especially those that relate to small business, should not be included in the legislation? Why is it that I suggest that the courts seem unwilling or unhappy about the introduction of the unconscionable conduct provision in the legislation? The history of intervention by the TPC and the ACCC has not been a happy one. ASIC has perhaps had a better record in pursuing recognition of the concept of unconscionability in typical scenarios. The most interesting and important decision is ASIC v National Exchange Pty Ltd (2005) 148 FCR 132. By and large the ACCC and ASIC pursued the easier cases, so as to avoid meeting the kinds of resistance that courts tend to display if the case concerns the interests of small business.
In my view, the interpretation crisis came to a head in Attorney General of New South Wales v World Best Holdings Limited (2005) 63 NSWLR 557. Chief Justice Spigelman, sitting on a powerful New South Wales Court of Appeal, introduced the concept of ‘moral obloquy’. The other two members of the Court agreed.
A critical question was the meaning within the Retail Leases Act 1994 (NSW) of unconscionability. A relevant tribunal was to take unconscionability into account when assessing the appropriateness of an order by the NSW Administrative Decisions Tribunal in relation to a tenancy agreement that came up for review. It was suggested in the appeal that the Panel, appointed under the legislation, had been too lenient in interpreting the relevant provision in the Retail Leases Act, which enabled the relevant tribunal to set aside an arrangement if it was unconscionable.
Chief Justice Spigelman traced the history of the unconscionable conduct provisions in the TPA to inform its meaning under the Retail Leases Act. He referred to the Ministerial Speech made when the legislation was introduced. The Minister claimed that the:
greatest achievement of the [legislation] is the draw down of the unconscionable conduct provisions of the Federal Trade Practices Act into the Retail Leases Act. This will provide affordable access, particularly for small business, to justice on matters of unconscionable conduct …[the legislation] is primarily aimed at behaviour change, establishing an acceptable framework within which leasing transactions can occur, and changing the culture from one of confrontation and disputation to one of communication and commercially advantageous co-operation (at [112]).
Chief Justice Spigelman described what he understood to be the purpose of a concept of unconscionability in the relevant statutes (see [120-124]), stating that it was a well-established but narrowly interpreted equitable principle. He added that the concept of unconscionability had been applied over a number of centuries, but with considerable restraint and in a manner that was consistent with the maintenance of the basic principles of freedom of contract. He also noted that it was not a principle of what ‘fairness’ or ‘justice’ or ‘good conscience’ required. Rather a clear distinction was drawn between what was unconscionable, and what was merely unfair or unjust. He then added, without citing any authority, that the notion of unconscionability was:
a concept which requires a high level of moral obloquy. If it were to be applied as if it were equivalent to what was “fair” or “just”, it could transform commercial relationships in a manner which…was not the intention of the legislation. The principle of “unconscionability” would not be a doctrine of occasional application, when the circumstances are highly unethical, it would be transformed into the first and easiest port of call when any dispute about a retail lease arises (at [121]).
Chief Justice Spigelman then observed that the tribunal members would understand this distinction and it was not Parliament’s intention for the notion of unconscionability to:
completely override the legal rights and obligations created by [a lease] relationship. Parliament did not intend that “unconscionability” claims could be made so readily as to virtually replace retail tenancy claims. Instead, the former needed to meet a high standard of moral obloquy (at [124]).
He concluded that members of the tribunal vested with the power to decide these issues would take these matters into account.
This fear, as expressed by the Chief Justice (and confirmed by the other members of the Appeal Court, President Mason and Appeal Justice Tobias) may well have been a reasonable view at the time. However, subsequent amendments of the unconscionable conduct provisions of the Competition and Consumer Act, after the ACCC and ASIC had failed to gain success in a number of cases, made it clear that the expression of unconscionability was to be given a much wider reading than that suggested by Chief Justice Spigelman. Included in sections 21 and 22 ACL, are a series of criteria that a court must take into account in assessing whether or not allegations of unconscionability arise, including inequality of bargaining power.
Importantly the legislation provides that these are not the only matters a court may take into account when assessing whether conduct, or a relevant contract, is unconscionable. It may take into account any other matter that it thinks is reasonable. This allowance for court discretion makes it quite clear, in my view, that unconscionability is much wider than the concept at common law or equity. It is intended to provide an important new remedy to persons who have been affected by such conduct.
I am not suggesting that I agree with the basic and underlying principle that such a law should have been introduced into the TPA or its successor. Indeed, I am concerned, as are many others, with the way in which the law of contract has been ‘deconstructed’ by Parliaments. I am concerned that we are watering down some of the basic principles of common law in certain ways. But, that is the voice of Parliament, representing the members of the community elected to govern our country. Their voice, unless there are very clear reasons why words in the relevant statute should be disregarded, should be adhered to by the courts when evaluating statutes brought before them in appropriate litigation.
I do not believe that s 51AC of the TPA was ever intended to undermine the operation of its own misuse of market power provisions. The latter provisions had been interpreted by the High Court of Australia to be driven by a different set of principles – the protection of the competitive process rather than the protection of the individual competitor.
Chief Justice Spigelman’s view that without the introduction of ‘moral obloquy’ into the interpretation of the unconscionable conduct provisions of the relevant New South Wales legislation, the law of contract would be undermined, is a view that I think is apparent in a number of cases dealing with the relevant statutory provision. ACCC v Lux Distributors Pty Ltd ( 2013) FCAFC 90 is an example. Chief Justice Allsop highlighted the importance of distancing the use of the concept of moral obloquy to constrain the interpretation of the unconscionable conduct provisions of the legislation.
In particular, there are two passages in the Full Federal Court judgment that are worthy of repetition. I set these out here with some necessary commentary in between to illustrate their relevant points. The extract below from the Full Federal Court’s decision is, with respect, far more helpful and illustrative of the type of conduct that is intended to be covered by the unconscionable conduct provisions of the legislation, than the stricter and ‘harsher’ (insofar as the disadvantages are concerned) interpretation adopted by Chief Justice Spigelman.
The Full Federal Court noted as follows:
The task of the Court [in determining whether unconscionable conduct exists] is the evaluation of the facts by reference to a normative standard of conscience. That normative standard is permeated with accepted and acceptable community values. In some contexts, such values are contestable. Here, however, they can be seen to be honesty and fairness in the dealing with consumers. The content of those values is not solely governed by the legislature, but the legislature may illuminate, elaborate and develop those norms and values by the act of legislating, and thus standard setting. The existence of State legislation directed to elements of fairness is a fact to be taken into account. It assists the Court in appreciating some aspects of the publicly recognised content of fairness, without in any way constricting it. Values, norms and community expectations can develop and change over time. Customary morality develops “silently and unconsciously from one age to another”, shaping law and legal values: Cardozo, The Nature of the Judicial Process (Newhaven, Yale University Press, 1921) pp 101-105. These laws of the States and the operative provisions of the [Australian Consumer Law] reinforce the recognised societal values and expectations that consumers will be dealt with honestly, fairly and without deception or unfair pressure. These considerations are central to the evaluation of the facts by reference to the operative norm of required conscionable conduct (at [23]).
The Full Federal Court also provided a useful reference to some earlier cases in which the concept of unconscionability in the relevant legislation had been considered. It made some very pertinent remarks in considering when conduct is unconscionable under the statutory provisions:
‘unconscionability’ means something not done in good conscience: for example, Hurley v McDonald’s Australia Ltd [1999] FCA 1728 at [22]; ACCC v Allphones Retail Pty Ltd (No 2) [2009] FCA 17; 253 ALR 324 at [113]; Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389 at [291], [293], and the cases discussed therein. No argument was put that required any consideration of the authorities. Notions of moral tainting have been said to be relevant, as often they no doubt are, as long as one recognises that it is conduct against conscience by reference to the norms of society that is in question. The statutory norm is one which must be understood and applied in the context in which the circumstances arise. The context here is consumer protection directed at the requirements of honest and fair conduct free of deception. Notions of justice and fairness are central, as are vulnerability, advantage and honesty (at [41]).
It is fair to say that the community generally welcomed the Full Federal Court decision in the Lux case. It was felt that this was a sensible evaluation of a set of facts that clearly cried out for a remedy. However, what is more important in my view, is that the Full Federal Court laid down the challenge for a broader interpretation of the concept of unconscionability. That challenge, however, has regrettably already been blunted to a significant extent by the Victorian Court of Appeal in Director of Consumer Affairs Victoria v Scully (No 3) (2013) 303 ALR168.
Finally, just to add to the complexity of the scenario that we face, is the fact that the High Court of Australia refused leave to appeal the Lux case. It did so probably because the case could be determined on its own facts. But one would hope that it also did so because it was persuaded by the correctness of the interpretation of the Full Federal Court (but I must admit that this is simply guesswork on my part).
Indeed, to the contrary, critics would suggest that the High Court of Australia has already embraced the concept of moral obloquy in its unusual decision on the unconscionability provisions of the legislation in the case of Kakavas v Crown Melbourne Ltd (2013) 298 ALR 35. The High Court, in a brief discussion of the unconscionable conduct provisions of the Competition and Consumer Act (which was not the most important or relevant part of the decision), accepted the fact that moral obloquy was an element in the interpretation of the unconscionable conduct provisions. That particular dicta of the High Court remains a critical part of the landscape in evaluating whether this legislation can be interpreted more generously than it has been to date.
Conclusions
In my view the High Court of Australia, once given an opportunity to consider the arguments that have been put forward, especially by the Full Federal Court in the Lux case, by the early history of the legislation, and the intentions of Parliament through the various amendments referred to previously, will rule in favour of a more generous interpretation of the unconscionable conduct provisions. It will suggest that the concept of moral obloquy inserted into the interpretation by Chief Justice Spigelman is not warranted and that a more generous interpretation of the unconscionable conduct provisions of the legislation should be adopted.
It is true that the courts will continue to be reluctant to undermine the applicability and effectiveness of the law of contract in appropriate circumstances. The court will equally, in my view, recognise that Parliament has intended for there to be a significant change in the way in which these issues are to be addressed going forward. Accordingly, any curtailment of remedies available in this context must come from a Parliamentary direction and not at the hands of the courts which, whilst adhering to well understood and cherished notions of contractual certainty and related concepts, may opt for a generous or otherwise interpretation.
Subsequent Developments
Since writing this note, the Harper Panel has issued its draft report into competition policy and reform. In the view of the Harper Panel the unconscionable conduct provisions of the relevant legislation should not be amended but the courts should be given time to develop a clearer interpretation of the relevant statutory provisions.
The draft report is subject to comments from the community (due by mid-November) and a final report will be issued in April/May next year.
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