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Unconscionable Conduct in Commercial Transactions Print E-mail

balance_intro.jpgChris Tam presented the following paper at the Litigating Contract Disputes Seminar held by Legalwise on 20 November 2012.


Commercial litigation after the global financial crisis1 has brought into sharp focus ongoing controversies surrounding the law of ‘unconscionable conduct’.

In 2012, some significant judgments in the area have been delivered by Queensland courts2 and elsewhere, including by the High Court.3 Those judgments were delivered in an economic environment tempered by increased market regulation – where the regulators seem to have an insatiable appetite for litigation notwithstanding some significant, well-publicised and embarrassing losses – tightening fiscal conditions and ongoing general market volatility.

The federal government and other institutions are taking their responsibility for ensuring that, insofar as legislative oversight and intervention allows, the commercial playing field is as fair as possible.

However the controversies surrounding ‘unconscionability’ (which date back to the birth of the Judicature system) continue to trouble lawyers, jurists and academics notwithstanding the attempts (by all arms of government) to impose order. In Muschinski v Dodds,4 Deane J said:

Long before Lord Seldon’s anachronism identifying the Chancellor’s foot as the measure of Chancery relief, undefined notions of “justice” and what was “fair” had given way in the law of equity to the rule of ordered principle which is of the essence of any coherent system of rational law.

With ‘justice’ and ‘fairness’ as reference points, it is unsurprising that so much controversy has ensued. Now, however, the ambition towards coherency, structure and doctrine in this area of the law has arguably manifested with clarity and purpose in the legislative reforms which are the subject of this paper.

At base, these developments should be applauded because they facilitate commerce and encourage prosperity because they provide commercial predictability. In 1775, Lord Mansfield said:

In all mercantile transactions the great object should be certainty: and therefore, it is of more consequence that a rule should be certain, than whether the rule is established one way or the other. Because speculators in trade then know what ground to go upon.5

Lord Mansfield’s observations surely must equally apply to modern trade and commerce, whatever the form.

More recently in Campbell Discount Co v Bridge6 Harman LJ said:

I do not think anyhow that the discrepancy can be healed by some rather loose conception of what are called equitable principles. Equitable principles are, I think, perhaps too often bandied about in common law courts as though the Chancellor still had only the length of his own foot to measure when coming to a conclusion. Since the time of Lord Eldon, anyhow the system of equity for good or evil has been a very precise one, and equitable jurisdiction is exercised only on well-known principles. There are some who would have it otherwise, and I think Lord Denning is one of them. He, it will be remembered, invented an equity called the ‘Equity of the deserted wife’. That distressful females condition has really not been improved at all now that the so-called equity has been analysed.

Similarly, I rather deprecate the attempt to urge the Court on what are called equitable principles to dissolve contracts which are thought to be harsh or which have turned out to be disadvantageous to one of the parties. It is pointed out in one of the cases cited to us yesterday (and Lord Nottingham’s observation in Maynard v. Moseley [(1676) 3 Swan 651 at 655] is still true, that: ‘The Chancery means no man’s bargain and I do not therefore see my way to call in aid equity to mend what may be an unfortunate situation and one which, if it calls for remedy, calls for aid by the legislature rather than by the justiciary.7

In 2012 the legislature seems to have picked up Lord Nottingham’s suggestion from Maynard v Moseley. This paper seeks to provide a brief overview of the legislature’s work which has principally culminated in amendments to the Competition and Consumer Act 2010 (Cth).

The significant developments in 2012 in this area of the law have been very recently addressed in a comprehensive and scholarly paper by the Dean of Monash Law School and member of the government’s expert panel for the inquiry into statutory unconscionability, Professor Bryan Horrigan.8

I highly recommend his paper and it is available on the Qld Bar website.9


My paper is narrower in scope and addresses two principle topics:

Topic 1 Update on Statutory unconscionable conduct; and

Topic 2 Summary of the ‘Unwritten Law’.


Garcia, Amadio and other ‘categories’ or ‘doctrines’

Before going to the statutory changes, it is worth briefly referring to some familiar general law examples of unconscionable conduct such as Amadio type unconscionable conduct (involving ‘special disadvantage’10) and Garcia type unconscionable conduct (involving equities historical protection of wives as guarantors).11

It will be shown that the updated forms of statutory unconscionability are significant extensions upon these well-understood and settled categories.

The authors of On Equity recognise that ‘unconscionable’ is a term which can mislead and confuse12 but which is generally recognised as having two meanings.

The first meaning is equity’s recognition of a range of circumstances – the authors refer to, fraud, breach of fiduciary duty, undue influence and ‘other’ – in which ‘unconscionability’ may be understood as:

…the fundamental principle upon which equity acts, namely that a party having a legal right shall not be permitted to exercise it in such a way that the exercise amounts to unconscionable conduct.13

The second meaning is a reference to a specific equitable doctrine which includes Amadio and Garcia type unconscionable conduct and, as further examples, the categories referred to in part four of Meagher, Gummow and Lehane, Equity Doctrines & Remedies under the general umbrella of ‘unconscionable transactions’: ‘fraud in equity’, ‘innocent misrepresentation’, ‘mistake in equity’, [more general] ‘undue influence’, ‘catching bargains’, ‘estoppel’ and ‘penalties and forfeiture’.

Topic 1 – Statutory Unconscionability

The tripartite statutory sources which regulate commercial dealings by providing a general prohibition on unconscionable conduct are:

    • Competition and Consumer Act (CCA)
    • Australian Securities and Investment Commissions Act (ASIC Act)
    • Corporations Act (Corps Act)

Summary of relevant provisions

The relevant extracts from these Acts is Annexure A to this paper.

The sources for statutory unconscionability and the relevant context for application of the provisions are as follows:

 Context CCA ASIC Act Corps Act
General Prohibition Section 20 (Schedule 2) Previously s 51AA TPA
Section 12CA (Financial Services)
Section 991A (Financial Services Licensee not to engage in unconscionable conduct)
Business-to- consumer
Sections 21 and 22 (Schedule 2)
Previously s 51AB TPA
Sections 12CB and 12CC

Business-to- business Sections 21 and 22 (Schedule 2)
Previously s 51AB TPA
Sections 12Cb and 12CC
Use professional therapeutic techniques, before or during mediation, to diagnose and treat relationship problems

2012 Reforms

‘Statutory indicators’

Perhaps the most significant reform to commence from 6 June 2012 is the inclusion in s 22(1) of Part 2-2 of the second schedule to the CCA of a non-exhaustive list of statutory indicators of unconscionable conduct.

The statutory indicators harmonise some of the indicia of unconscionable conduct in relation to both business-to-consumer and business-to-business contexts. The new s 22 of the CCA replaces the old ss 22 and 23 which themselves superseded ss 51AB and 51AC of the Trade Practices Act.

The twelve indicators are as follows:14

(a) [relative bargaining positions] ‘the relative strengths of the bargaining positions of the supplier and the customer’;

(b) [beyond legitimate commercial interests] ‘whether, as a result of conduct engaged in by the supplier, the customer was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the supplier’;

(c) [understanding of documents] ‘whether the customer was able to understand any documents relating to the supply or possible supply of the goods or services’;

(d) [undue influence, unfair tactics, and duress] ‘whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the customer or a person acting on behalf of the customer by the supplier or a person acting on behalf of the supplier in relation to the supply or possible supply of the goods or services’;

(e) [equivalent pricing and circumstances] ‘the amount for which, and the circumstances under which, the customer could have acquired identical or equivalent goods or services from a person other than the supplier’;

(f) [equivalent treatment] ‘the extent to which the supplier’s conduct towards the customer was consistent with the supplier’s conduct in similar transactions between the supplier and other like customers’;

(g) [code compliance I] ‘the requirements of any applicable industry code’;

(h) [code compliance II] ‘the requirements of any other industry code, if the customer acted on the reasonable belief that the supplier would comply with that code’;

(i) [non-disclosure] ‘the extent to which the supplier unreasonably failed to disclose to the customer:

(i) any intended conduct of the supplier that might affect the interests of the customer; and

(ii) any risks to the customer arising from the supplier’s intended conduct (being risks that the supplier should have foreseen would not be apparent to the customer)’;

(j) [contractual terms, progress, and conduct] ‘if there is a contract between the supplier and the customer for the supply of the goods or services:

(i) the extent to which the supplier was willing to negotiate the terms and conditions of the contract with the customer; and

(ii) the terms and conditions of the contract; and

(iii) the conduct of the supplier and the customer in complying with the terms and conditions of the contract; and

(iv) any conduct that the supplier or the customer engaged in, in connection with their commercial relationship, after they entered into the contract’;

(k) [unilateral variation] ‘without limiting paragraph (j), whether the supplier has a contractual right to vary unilaterally a term or condition of a contract between the supplier and the customer for the supply of the goods or services’; and

(l) [good faith] ‘the extent to which the supplier and the customer acted in good faith’.

The question which follows from the introduction of these statutory indicators is what do they mean? Time will tell. Professor Horrigan observes that ‘high-level judicial guidance’ on these provisions are still in the early stages of development however the High Court has so far clarified that:15

a. The statutory prohibition of unconscionable conduct includes the equitable doctrine relating to exploitation of a weaker parties ‘special disadvantage’ see Berbatis;

b. ‘The character of the statutory provisions governing business-to-business unconscionability relates to imposed norms of conduct, as distinct from establishing liabilities or causes of action, with failure to meet the statutorily prescribed norm of conduct attracting statutory consequences that are not to be limited necessarily by the nature of claims and remedies under the general law (see Master Education Services Pty Limited v Ketchell (2008) 235 CLR 101, a franchising case)’;

c. ‘An overly rigid translation of common law notions on causation to the broader purposes, forms of conduct, and remedial consequences covered by the Trade Practices Act (now the Competition and Consumer Act) is inappropriate, including in relation to statutory unconscionability (see I and L Securities v HTW Valuers (2002) 210 CLR 109 at [69] and [104]; and Henville v Walker (2001) 206 CLR 459 at [96])’; and

d. ‘The statutory indicators of [business-to-consumer] and [business-to-business] unconscionability relating to reasonableness and legitimate interests are one manifestation of the ways in which the law uses notions of ‘reasonable necessity’ ( Thomas v Mowbray (2007) 233 CLR 307 at [22]).

General Prohibition

Where the now harmonised statutory indicators of unconscionable conduct do not apply to a particular circumstance, recourse may be had to s 20 of the CCA (the general prohibition) which replaced s 51AA of the Trade Practices Act. Section 20(1) of the CCA, second schedule, provides:

20 Unconscionable conduct within the meaning of the unwritten law

(1) A person must not, in trade or commerce, engage in conduct that is unconscionable, within the meaning of the unwritten law from time to time.

Note: A pecuniary penalty may be imposed for a contravention of this subsection.

(2) This section does not apply to conduct that is prohibited in section 21.

The reference to the ‘unwritten law’ stands out and is discussed in topic 2 below.

It is also noteworthy that s 20 empowers the regulators to impose pecuniary penalties for contraventions.

Interpretive Principles

The final significant reform from 2012 is the introduction of new principles of interpretation for statutory unconscionability in the business-to-business and business-to-consumer contexts which are expressed in s 21 of the CCA as follows:

(4) 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.

Summary of legislative changes

What appears to be a significant attempt by Parliament to set the boundaries of the types of conduct which may be characterised as unconscionable should be cautiously reviewed. This is notwithstanding the effect of s 21(4) of the CCA which removes any constraints arising from the general law of unconscionable conduct and has the consequence that those constraints are not to be imported into an analysis of the statutory indicators of unconscionable conduct in s 22(1) of the CCA.

Practitioners are likely to gain only limited assistance from the legislative text because the High Court has not yet had an opportunity to clarify how the reforms are to be understood in practice and intermediate courts of appeal in Australia are constrained by the High Court’s edict in Farah Constructions v Say Dee (2007) 230 CLR 89.

There undoubtedly will be many test cases in the coming years as litigation funding becomes more established in Australia (see Bathurst Regional Council v Local Government Financial Services Pty Ltd (No 5) [2012] FCA 1200, delivered 5 November 2012 – litigation concerning local government councils purchasing financial products) and class actions continue to proliferate.

Topic 2 – the ‘Unwritten Law’

The controversies surrounding this area of the law were mentioned at the outset of this paper.

These controversies are intensified because equitable doctrines which either fall under the umbrella of ‘unconscionable transactions’ or, in some other way, have as their ‘fundamental principle’ a notion that equity will respond to conduct which is ‘unconscionable’ have developed independently.

In Tanwar Enterprises Pty Ltd v Cauchi,16 Gleeson CJ and McHugh, Gummow, Hayne and Heydon JJ said:

The terms ‘unconscientious’ and ‘unconscionable’ are, as was emphasised [by the High Court] in Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd, used across a broad range of the equity jurisdictions. They describe in their various applications the formation and instruction of conscience by reference to well-developed principles. Thus, it may be said that breaches of trust and abuses of fiduciary position manifest unconscientious conduct; but whether a particular case amounts to a breach of trust or abuse of fiduciary duties determined by reference to well-developed principles, though specific and flexible in character. It is to those principles that the Court has first regard rather than entering into the case at that higher level of abstraction involved in notions of unconscientious conduct in some loose sense where all principles are at large.

The term ‘unconscionable conduct’ is used in authorities such as Legione and Stern. There is nothing new in this ... Cases of alleged undue influence and catching bargains [show that] the governing equitable principle in this field is concerned with the production by maligned means of an intention to act. In that context, it is easy to speak to the conduct of the stronger party as unconscionable. But the phrase ‘unconscionable conduct’ tend to mislead in several respects.17

The imperative to organise and define the boundaries of the distinct categories of case falling under the umbrella of ‘unconscionable conduct’ and the general law’s reaction to that conduct was recognised by French CJ when his Honour was a judge of the Federal Court of Australia at first instance in ACCC v CG Berbatis Holdings Pty Ltd: ‘The boundary defined by union of these classes of cases are potentially unstable as the taxonomy of applications of unconscionable conduct may shift under the unwritten law to the level of a general unifying concept or be subsumed in the more accurate idea of ‘unconscientious’ conduct’.18

Furthermore, in Attorney-General (NSW) v World Best Holdings Ltd,19 Spigelman CJ warned:

Over recent decades, legislatures have authorised courts to rearrange the legal rights of persons on the basis of vague general standards which are clearly capable of misuse unless their application is carefully confined. Unconscionability is such a standard.

Unconscionability is a well-established but narrow principle in equitable doctrines. It has been applied over the centuries with considerable restraint and in a manner which is consistent with the maintenance of the basic principles of freedom of contract. It is not a principle of what ‘fairness’ or ‘justice’ or ‘good conscious’ requires in the particular circumstances of the case ... Even if the concept of unconscionability [in the NSW Retail Lease Act] is not confined by equitable doctrine as the decisions under s 51AC of the Trade Practices Act suggests, restraint in decision-making remains appropriate. Unconscionability is 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 (emphasis added).

The natural consequence of allowing principles derived from the ‘unwritten law’ and the statutory incidents of unconscionable conduct to co-exist brings into focus the question whether standards of statutory unconscionable conduct are now more stringent than the standards of the ‘unwritten law’?

[Professor Horrigan addresses the question in his recent lecture20 which is beyond the scope of this paper]


The current environment in which such considerable legislative change was mentioned at the outset of this paper.

There is an overwhelming policy reason and social imperative for legislators not to set the bar too low when setting the legislative boundaries for conduct which the law considers should be condemned for its ‘moral obloquy’. At the same time, the challenges associated with having some freestanding or organising principal (‘the chancellor’s foot’) must be met and contained and be made relevant to modern commercial transactions.

Professor Horrigan observes that the present trend in the cases and commentary suggests that the statutory standard of unconscionable conduct goes beyond the meaning given by the ‘unwritten law’.21

But Professor Horrigan also points out that the new statutory indicators simply provide a framework in which conduct may be assessed.

He observes that the listed indicators of statutory unconscionability might apply, depending on the nature and circumstances of the case, either independently or in combination. Accordingly, it would be unlikely for a Court to be satisfied because of the presence of, say, one of the indicators or even more that a finding of unconscionable conduct should inevitably follow which reinenforces the significance of the ‘imposed norms of conduct’ analysis (see paragraph [24]b above).

What does this mean for practitioners and advisors?

It is dangerous for practitioners, either when advising or when pleading cases, to take a simplified ‘indicator-by-indicator’ approach and pleading towards the positive conclusion that the conduct, was in all the circumstances ‘unconscionable’.

Whilst the statutory indicators provide the relevant framework, context and circumstances as well as a flexible approach remain highly relevant as they always have been. Advice and pleadings should account for this.

Judges are no more constrained under the new legislative regime than previously. Plaintiffs must still plead and prove the relevant substratum of facts if they are to succeed in their claim. For example, in Astran Financial Services Pty Ltd v Bank of Queensland Ltd,22 Buchanan J of the Federal Court observed that a ‘conclusion that conduct is unconscionable requires the identification of a standard in behaviour which is not to be equated merely with a list of factors to which a Court may have regard’.

The result is that whilst the legislature has taken up and run with the obvious imperative to address concerns which have been expressed for many years that this area of the law needed to be more closely articulated which could only effectively occur by statute the expansive nature of the Court’s inquiry is still required.

Guidance is given by the statutory indicators and the ‘unwritten law’ which assist in setting the boundaries and applicable reference points to assess the conduct in question.


Whilst uncertainties in this area of the law may provide yet more work for lawyers, but more likely, in practice, academics, there can be little doubt that the recent statutory reforms will have, and have had, the general effect of improving protection for consumers and business.

There is a social imperative for these layers of protection, paticularly in the current economic and social environment and the legislatures efforts should be applauded.

The recent experience of the United States after the GFC and in failing (or failed) developed economies in Europe signals the importance of a reasonable level of economic regulation.

It must be a source of comfort for Australian consumers and businesses that the legislature is encouraging more responsible commercial practices.

Chris Tam

  1. 1. Significant cases include Goodridge v Macquarie Bank Limited [2010] FCA 67 (on appeal, Leveraged Equitites Limited v Goodridge [2011] FCAFC 3); Imobiliari Pty Ltd v Opes Prime Stockbroking Ltd [2008] FCA 1920; ASIC v Bank of Queensland Ltd [2011] FCA 1361 (the ‘Storm Litigation’, presently being heard in the Federal Court); Oliver v CBA (No 1) [2011] FCA 1440, ASIC v Australian Lending Centre Ltd (No 3) [2012] FCA 43.
  2. Eg Coronis v Jilt Pty Ltd [2012] QCA 66; Agripay Pty Ltd v Byrne [2011] QCA 85; Thomas v Balanced Securities Ltd [2011] QCA 258; Dowdle v Pay Now For Business Pty Ltd [2012] QSC 272; ACN 096 278 483 Pty Ltd v Vercorp Pty Ltd [2011] QCA 189; and NAB v McCall [2011] QSC 25.
  3. Eg Andrews v Australia and New Zealand Group Ltd (2012) 290 ALR 595; [2012] HCA 30; Beerens v Bluescope Distribution Pty Ltd [2012] VSCA 209; Tenth Vandy Pty Ltd v Natwest Markets Australia Ltd [2012] VSCA 103; Kakavas v Crown Melbourne Ltd [2012] VSCA 95; Alstom Ltd v Yokogawa Australia Pty Ltd [2012] SASC 49; Technology Leasing Ltd v Lennmar Pty Ltd [2012] FCA 709; ASIC v Australian Lending Centre Ltd (No 3) [2012] FCA 43; and Westpac v Bell Group [2012] WASCA 157.
  4. (1985) 160 CLR 583, 616.
  5.  Vallejo v Wheeler (1774) 1 Cowp 143; 98 ER 1012 (KB) 1017. See also JD Heydon, How Far Can Trial Courts and Intermediate Appellate Courts Develop the Law, Summer 2009 OUCLJ 1, 10 and the reference to Aud v Magruder 10 Cal 282, 291 (1858) (‘if Courts establish new rules whenever they are dissatisfied with the reasons upon which the old ones rest, the standards of commercial transactions would be destroyed, and commercial business regulated by a mere guess at what the opinion of Judges for the time might be’).
  6. [1961] 1 QB 445-458-9.
  7. (emphasis added).
  8. B Horrigan New Directions in How Legislators, Courts, and Legal Practitioners Approach Unconscionable Conduct in Good Faith, paper delivered as part of the University of Queensland current legal issues seminar series on 18 October 2012.
  9. https://portal.barweb.com.au/news/view_news_item.aspx?id=43.
  10.  Commercial Bank of Australia v. Amadio (1983) 151 CLR 447, 474. See also Bridgewater v Leahy (1998) 194 CLR 457, 479, Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (‘Berbatis’) (2003) 214 CLR 51, 76-7.
  11. Garcia v. National Australia Bank Ltd (1998) 194 CLR 395.
  12. Young, Croft and Smith, On Equity, [5.220], referring to the discussion in Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315, 324-6.
  13. Amadio, (1983) 151 CLR 447, 461 (emphasis added); Also see Berbatis (2003) 214 CLR 51, 72-3 [42]-[43]; Stern v McArthur (1988) 165 CLR 489,526-7.
  14. With Professor Horrigan’s characterisation in bold and square brackets. See p 9-10.
  15. Pages 11-12.
  16. (2003) 217 CLR 315.
  17. Ibid [20] –[23] (emphasis added).
  18. [2000] FCA 2, [23].
  19. [2005] NSWCA 261, [119]-[121].
  20. See from page 56 onwards.
  21. He refers to ASIC v National Exchange Pty Ltd [2005] FCAFC 226; ANZ Banking Group v Karam [2005] NSWCA 344; and Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389.
  22. [2010] FCA 1010, [355].

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