Background

In December 2008 the Senate Standing Committee on Economics (Committee) tabled its report on the operation of the unconscionable conduct provisions of the Trade Practices Act 1974 (Cth) (TPA). The main finding of the Committee was that the current legal position was skewed in favour of big business interests, sometimes at the expense of smaller businesses and customers. The Committee recommended that:

  1. section 51AC of the TPA be amended to state that the prohibited conduct in section 51AC related to the terms of or progress of a contract (as well as the formation of a contract);
  2. an inquiry be conducted to consider the option of introducing a list of unconscionable conduct examples and statement of principles into the TPA; and
  3. the ACCC should pursue targeted investigation and funding of test cases.

Outcomes

  1. On 5 November 2009, the government released its formal response to the Committee’s report, accepting all three recommendations. In particular, it indicated its support for the amendment proposed by the Committee in Recommendation 1, which was to clarify that the unconscionability provisions apply to the actual operation of a contract and not just to its formation.
  2. The government did not support recommendations of the minority:
    • to introduce a legislative definition of ‘unconscionable conduct’, taking the view that the equitable concept should continue to apply and that any new definition is likely to create greater uncertainty;
    • to amend the TPA to prohibit bullying, intimidation, physical force coercion and undue harassment, taking the view that there is sufficient protection under s.60 of the TPA, various state and territory criminal provisions and the unconscionable conduct provisions; and
    • to introduce a statutory duty of good faith into the TPA to apply to all business to business relationships, on the basis that there was insufficient policy reasons to make such a wholesale change.
  3. In pursuance of the Committee’s second recommendation, an expert panel has been appointed to inquire and report to the Minister for Competition Policy and Consumer Affairs, the Hon Dr Craig Emerson MP, by the end of January 2010. ‘The nature and application of unconscionable conduct regulation – Can statutory unconscionable conduct be further clarified in practice?’ Issues Paper, 27 November 2009 (Issues Paper) was issued as part of this inquiry.

The Issues Paper

Objectives of the Issues Paper

The Issues Paper is intended to assist the expert panel to consider, amongst other things:

  1. the efficacy of introducing a list of unconscionable conduct examples or a statement of principles into the TPA; and
  2. the content of the list of examples or a statement of principles.

Examples of unconscionable conduct

The Issues Paper has proposed that the examples be in the form of:

  1. endnotes – these will not form part of the TPA but can be used as extrinsic material to help interpret Part IVA of the TPA;
  2. examples in the Act – these will not create a presumption of unconscionability. The court will need to determine whether conduct that falls within one of the examples is unconscionable in the particular circumstances; or
  3. statutory presumptions – conduct which falls within one of the examples will be presumed to be unconscionable in the absence of evidence to the contrary. The Issues Paper noted that this form was favoured by the Senate Economic Committee.

The Issues Paper has suggested that the content of the examples be obtained from:

  1. conduct which the court has found to be unconscionable in the past;
  2. conduct which Parliament considers should be unconscionable; or
  3. the current factors in the TPA.

Statement of principles

The expert panel will also consider a statement of principles as an alternative to a list of examples of unconscionable conduct . The principles could be in the form of:

  1. a statement of legislative purpose/intention (similar to section 44AA TPA); or
  2. a list of factors that must be considered by the court.

However, the Issues Paper recognised the difficulty of articulating unconscionable conduct in a set of defined principles given:

  1. existing debate around the scope of the unconscionability provisions; and
  2. the tension between broadly capturing the nature of unconscionable conduct and framing the principles with sufficient specificity.

This seems to suggest that the list of unconscionability examples is the approach favoured by the government.

Alternative approaches

The Issues Paper sought input as to possible alternative non-legislative approaches to clarifying the operation of the unconscionable conduct provisions and made mention of three non-legislative alternatives in particular. These were:

  • increased guidance from regulators;
  • using the ACCC’s power under section 87B to obtain undertakings in respect of unconscionable conduct; and
  • introduction of codes of conduct that target specific industries.

When will the amendments take effect?

Any proposed amendments are intended to be introduced into Parliament in early 2010 (in the second Bill to implement the Australian Consumer Law).

Comment

Neither the majority of the Committee nor the government appears to believe that a detailed and prescriptive definition of unconscionability is the answer to the issues. We would agree with this view. The government seems to be more focussed on replacing the existing factors which courts may have regard to under the current unconscionability provisions with examples or a statement of principles. We believe this is unlikely to have any practical effect on the application of those provisions.

The government has indicated that the proposed change to the unconscionability provisions designed to clarify that they apply to not just procedural unconscionability but also to substantive unconscionability is not intended to ‘alter the prohibition or create a new standard of business conduct’.1 This may not necessarily be true. The key to this will be the types of examples or statement of principles that are incorporated and whether they are mandatory in their application. The effect of the expanded concept of unconscionability together with a set of new examples or a statement of principles may mean that business to business relationships are subject to greater scrutiny and challenge than previously.