In proceedings issued in the Federal Court against Coles Supermarkets Australia Pty Ltd (Coles), Coles has made a number of admissions of unconscionable conduct under the Australian Consumer Law (ACL) in regard to its dealings with suppliers in 2010 and 2011. The Australian Competition and Consumer Commission (ACCC) and Coles have jointly sought orders that Coles pay approximately $10 million in fines.

This comes as a timely reminder for businesses to be aware of their obligations under the ACL when engaging in commercial negotiations. Justice Gordon has expressed doubt about whether the penalties go far enough. A decision of whether the settlement will be allowed may not be made until the new year.

It has also been reported that the ACCC is launching investigations into Coles’ major competitor Woolworths for engaging in unconscionable conduct. The allegations made against Woolworths are remarkably similar to those made in the Coles proceeding. It remains to be seen whether these investigations lead to prosecution by the ACCC.

While hard bargaining is expected in many commercial negotiations, these proceedings are a reminder that businesses need to be cautious not to overstep the mark. Taking into account that there is no strict legal definition of what constitutes unconscionable conduct under the ACL, recent case law indicates that what is unconscionable will be judged on what is acceptable with reference to the norms of society, including accepted community values.

Factors that the court will take into account when determining whether a party acquiring goods or services has engaged in unconscionable conduct include:

  • the relative strength of the bargaining positions of the parties
  • whether the conduct of each party is consistent with conduct in similar transactions
  • the use of undue influence, pressure or unfair tactics by the stronger party
  • any applicable industry codes
  • the conduct of the parties in complying with the terms and conditions of the contract
  • whether the stronger party has a right to vary unilaterally, a term or condition of a contract
  • the extent to which the parties acted in good faith.

Although the ACL provisions do not prohibit businesses from seeking the best possible outcome when negotiating a commercial agreement, it does require that in seeking this outcome, they engage in negotiations in a manner that is consistent with accepted business practice, without seeking to exploit a weaker, more vulnerable party.

Undue pressure or unfair tactics in a negotiation might amount to unconscionable conduct, particularly when the conduct of the stronger party is particularly harsh or oppressive or goes beyond the bounds of commercial bargaining.