Chapter 3
The unconscionable conduct provisions
3.1
This chapter examines the bill's provisions on 'unconscionable conduct'
relating to section 51AC of the Trade Practices Act (1974) (TPA). As
with the amendments to section 50, these provisions have also been derived from
inquiries by this committee and a government process.
Senate Economics Committee inquiry
3.2
In December 2008, this committee tabled its report into the need for a
statutory definition of 'unconscionable conduct' in section 51AC of the TPA. The
inquiry was established by independent Senator Nick Xenophon.
3.3
The committee recommended in its report that the federal government
engage industry participants in an inquiry process to consider whether a clear
list of examples and a statement of principles would enhance the
'unconscionable conduct' provisions of the TPA.[1]
The committee argued that:
Properly drafted, through the consultative process
recommended,...a list of these principles would provide another useful option to
clarify section 51AC for the courts and the parties involved...A list of
principles would also act as a deterrent to larger businesses in a way that
section 51(3) does not.[2]
The expert panel
3.4
In response, the Minister for Competition Policy and Consumer Affairs,
the Hon. Dr Craig Emerson MP, convened an expert panel to consider the issues
raised in this committee's inquiry.[3]
On 27 November 2009, the Minister appointed Professor Bryan Horrigan, Mr David
Lieberman and Mr Ray Steinwall to the expert panel. He asked the panel to consider
whether a list of examples that all parties agree constitute unconscionable
conduct, or a statement of principles concerning unconscionable conduct, should
be incorporated into the TPA.
3.5
The same day, the government released an issues paper prepared by
Treasury to canvass stakeholder views of the proposals on unconscionable
conduct discussed in this committee's report. The paper was drawn to the
attention of key stakeholders in the franchising, retail tenancy, business and
academic sectors and was circulated to Commonwealth, state and territory governmental
agencies dealing with consumer protection, small business and retail tenancy issues.[4]
3.6
The panel provided the Minister with their report in February 2010.
These experts were assisted in their inquiry by Treasury officials and officers
from the Department of Innovation, Industry, Science and Research.
Examples and test cases
3.7
The expert panel found that a list of examples will not improve the
understanding or implementation of the unconscionable conduct provisions in
section 51AC. It gave three reasons. First, examples may create 'a false sense
of expectation' in those who read them:
It is easy to imagine small business owners who feel hard
done by in their transactions with larger businesses, reading the examples of
unconscionable conduct and adopting the view that their specific circumstances
match one of them. This could lead many to invest significant resources in
terms of time, effort and money in pursuing a case, only to discover that a
court, in considering the particular circumstances, finds that the conduct is
not unconscionable.[5]
3.8
Second, the panel argued that a list of examples is unlikely to remain
current as community expectations change and with them change thereby the understanding
and meaning of unconscionability. The panel considered it too legislatively and
administratively burdensome for a list of statutory examples to be updated over
time.[6]
3.9
The panel's third objection to statutory examples relates to the need to
develop interpretation of the provisions. It argued that the mere presence of
examples may serve as an indication that parliament has set the general bounds
of the provision. The panel observed in its report that:
...many submissions point to a judicial tendency to reading
examples as though they limit the scope of the provisions they exemplify. This may
be particularly the case in lower courts or tribunals, where decision-makers
may be reluctant to step outside the bounds of the examples.[7]
Test cases
3.10
This committee recommended in its December 2008 report that the ACCC
pursue targeted investigation and funding of test cases into the unconscionable
conduct provisions.[8]
While not supporting a list of statutory examples, the expert panel did note
the importance of bringing further test cases to develop national guidance on
the unconscionable conduct provisions. It considered that these test cases are
examples of unconscionable conduct and that 'publicising these cases will bring
greater community understanding of the provisions'. The panel also noted that
the new provisions arising out of its report would benefit from 'appropriate
test cases being brought, and reported through guidance material'.[9]
Interpretive principles
3.11
The expert panel did argue that interpretative principles 'would assist
the courts in interpreting the provisions, stakeholders in understanding them
and regulators in enforcing them'. In particular, it noted that the principles
should recognise that section 51AC is intended to go beyond the scope of the
equitable and common law doctrines of unconscionability in section 51AA.[10]
3.12
The expert panel explained in its report the nature and purpose of the proposed
'interpretative' principles. It noted that some of the submissions to its
inquiry suggested inserting principles that indicate what appropriate behaviour
from a business might be, and where there may or may not be strict legal
consequences should a business not comply with that behaviour.[11]
Other submissions noted that principles could serve as a guide to
interpretation of the provisions, and may or may not be mandatory
considerations.[12]
The panel's preference for 'interpretive' principles was based on the objective
of:
...assisting the courts and other stakeholders in interpreting
the provisions. Principles of business conduct are closer to examples, which
the panel has already examined. Guiding principles of interpretation provide an
indication of the law’s effect without unduly confining the law's development.[13]
3.13
The panel recommended that the following three interpretive principles:
-
that the prohibition against unconscionable conduct in the TPA is
not limited to the equitable or common law doctrines of unconscionable conduct;
-
unconscionable conduct is not limited to the bargaining practices
leading to the formation of a contract but can also be apparent in the way a
party exercises its rights under a contract or the way in which a party behaves
once a contract is made; and
-
unconscionable conduct applies to systemic conduct or patterns of
behaviour and there is no need to identify a person at a disadvantage in order
to attract the prohibition.[14]
Provisions of the bill
3.14
The bill adopts all the panel's recommendations concerning
unconscionable conduct, including the interpretative provisions. The bill proposes
to insert the following words into the Act, which will form section 21(4) of
the Competition and Consumer Act 2010:
It is the intention of the Parliament that:
(a)
this section is not limited by the unwritten law relating to
unconscionable conduct; and
(b)
this section is capable of applying to a system of conduct or pattern of
behaviour, whether or not a particular individual is identified as having been
disadvantaged by the conduct or behaviour; and
(c)
in considering whether conduct to which a contract relates is
unconscionable, a court’s consideration of the contract may include
consideration of:
(i)
the terms of the contract and
(ii)
the manner in which and the extent to which the contract is carried out;
and is not limited to consideration of the circumstances
relating to formation of the contract.
3.15
The bill also consolidates the previous sections 51AB and 51AC of the
TPA in order to remove the distinction between business and consumer
transactions with regard to unconscionable conduct.[15]
Views on the 'unconscionable conduct' provisions
3.16
Treasury acknowledged in its evidence that 'there is obviously some
controversy around the scope and nature of unconscionable conduct'. Indeed,
this is partly what has prompted the recommendation of the panel to insert
interpretative principles and the government's acceptance of this recommendation.[16]
3.17
The bill has not resolved this controversy, however. The Shopping Centre
Council of Australia, notably, argued in its submission that the bill's
provisions create potential for the scope of statutory unconscionability to be
expanded beyond the sensible limits that were intended by the parliament in
1998. The Council reiterated its position that:
...there is no evidence that the unconscionable conduct
provisions in the present Part IV of the Act are confusing to the courts, or to
relevant tribunals; nor to the body given primary responsibility for enforcing
these provisions, the Australian Competition and Consumer Commission.[17]
3.18
The Australian Chamber of Commerce and Industry also argued that the interpretive
principles 'will greatly widen' the ability of courts to interpret those
sections relating to unconscionable conduct beyond the original intention of
the parliament.[18]
3.19
The Motor Trades Association of Australia (MTAA), on the other hand, argued
that the principles will not provide the necessary guidance for the courts to
identify cases of unconscionable conduct. It noted in its submission that:
For small business operators one of the major difficulties is
that ‘unconscionable’ conduct is a difficult concept to prove. The factors to
be listed in the new section 22 of the Competition and Consumer Act are not of
themselves determinative of a breach of the unconscionable conduct provision
and the courts have found that there must be something more than ‘hard
bargaining’ on the part of the stronger party to sustain a case of
unconscionable conduct. Many businesses that operate under contractual arrangements
(such as franchise agreements) are in a ‘captive’ situation and MTAA does not believe
that the current law deals effectively with inappropriate behaviour by larger
business in such circumstances.[19]
3.20
The committee asked Treasury officials whether the interpretive
principles will assist the courts to identify 'unconscionable conduct'. Mr
Simon Writer responded:
The interpretive principles are designed to give greater
clarity about where the courts can go with the provision so that it is clear to
the court that it is not bound by the equitable principles around
unconscionable conduct that have traditionally been understood to apply. The
other principles make it clear that the courts can go to matters that perhaps
have been considered previously to be beyond the sorts of things that courts
can look at so that it can go beyond procedural unconscionability into issues
of substantive unconscionability and can look at cases that involve patterns of
behaviour and do not require the ACCC or another regulator—or whoever is
bringing the action—to point to particular persons, which has obviously been a
big concern in this area, but to these patterns of conduct.[20]
3.21
The Law Council told the committee that it is important that one of the
interpretive principles is to remove the connection from the legal concept of a
special disadvantage to the person who is the victim of the unconscionable
conduct.[21]
This is consistent with the widely held view that section 51AC of the TPA
extends beyond procedural disadvantage to substantive disadvantage.[22]
Principles, not examples
3.22
The Law Council commented that the changes to section 51AC are
'appropriate' to provide further safeguards for consumers.[23]
Mr Stephen Ridgeway, Deputy Chair of the Law Council, commended the expert
panel for their work. In particular, he argued that the panel was correct to
focus on principles rather than examples of unconscionable conduct:
...it is far preferable to make the changes that have been made
rather than trying to cement examples of particular types of conduct. The
concept of unconscionability has been around for a long time in our law, but it
has perhaps become fixed in certain principles. What these amendments attempt
to do is break some of those connections, which is an appropriate change,
rather than trying to pick specific examples of conduct that may mislead people
about the extent of unconscionability. The principle of equity in our law was
designed to be flexible—there is the old saying that the law is that categories
of equity are not closed...Some things which are unconscionable in one
circumstance may not be in another, and you are really going to limit the
application of the concept.[24]
3.23
Mr Dave Poddar, Chair of the Law Council's Trade Practices Committee,
also argued that the panel's approach is sound. He told the committee that
while examples are necessarily fact based, principles are preferable 'because
they are less likely to tie the law down to particular fact based situations'.[25]
Wider enforcement
3.24
Treasury also noted in its evidence that the provisions on
unconscionable conduct will form part of the new Australian Consumer Law and as
such will apply nationally to corporations and to the laws of each of the
states and territories. They will be enforceable in Commonwealth and in state
and territory courts. Treasury anticipated that regulators and individual
claimants would thereby be able to bring actions much more cheaply than they
could through the Federal Court.[26]
It noted that these broader avenues for public enforcement are consistent with
the government's in principle acceptance of the expert panel's favour for more
test cases on the unconscionable conduct provisions (see paragraph 3.10,
above).[27]
Committee view
3.25
The committee is pleased that the government—acting on the
recommendation of the expert panel—is legislating for the inclusion of a list
of statutory principles to clarify the unconscionable conduct provisions of the
TPA. It believes it is important that the Act state explicitly that these
provisions extend beyond the equitable and common law doctrines of
unconscionability. To this end, the committee urges the government and the ACCC
to heed the advice of the expert panel and pursue test cases to develop
national guidance on the new provisions.
Recommendation 1
The committee recommends that the Senate pass the bill.
Senator Annette Hurley
Chair
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