Small businesses that enter into contracts to provide or receive goods or services will always encounter some level of bargaining and negotiation. The Australian Consumer Law (ACL) offers small businesses protection from unconscionable conduct. This is because small businesses fall under the definition of a consumer under the ACL if they acquire goods or services for an amount that does not exceed $40,000. Determining whether one party has engaged in unconscionable conduct during this stage will come down to their actions. Below, we answer three FAQs about small businesses and unconscionable conduct and provide an overview of protection afforded to small businesses under the ACL.

1. What Does the ACL Say About Unconscionable Conduct?

Sections 20-22 cover unconscionable conduct, most relevantly for small businesses:

  • Section 20 which prevents a person in trade or commerce from engaging in unconscionable conduct within the meaning of the “unwritten law”; and
  • Section 22 which prevents a person in trade or commerce from engaging in unconscionable conduct that is in all circumstances deemed unconscionable.

Unwritten law refers to existing case law and what the courts have interpreted as unconscionable in the past.

Has a Business Acted Unconscionably?
  • Did the business act in good faith?
  • Does the business have rights to vary a term or condition of a contract unilaterally?
  • Was the business willing to negotiate the terms and conditions?
  • How did the business’ conduct compare to similar transactions?
  • Did the business have an obligation to comply with any industry codes?
  • Did the business require the other party to comply with conditions that were not reasonably necessary for their protection?
  • What was the bargaining power of the business?
  • Did the business provide documents relating to the transaction that the other party could understand?
  • Did the business exercise undue influence or unfair tactics?

2. How Does This Affect Small Businesses?

If a small business believes that another party has engaged in unconscionable conduct, they can seek protection under the ACL. The small business will, however, be required to prove that the other party engaged in unconscionable conduct, looking at the answers to the questions mentioned above.

Small businesses should be aware of the different scenarios in which unconscionable conduct may occur, including:

  • entering into a contract;
  • negotiating a contract;
  • varying terms of a contract; or
  • enforcing the terms of the contract.

3. What are the Potential Outcomes of Unconscionable Conduct?

Small businesses relying on the ACL’s protections can seek compensation for losses or damages they have incurred. Other possible outcomes include:

  • making a term in a contract void;
  • allowing a term in a contract to be varied;
  • receiving a refund; or
  • requiring the other party to perform a particular term in a contract.

The party that has engaged in unconscionable conduct may also be responsible for paying financial penalties.