Unconscionable conduct protections extended to publicly listed companies

15 November 2018

Publicly listed companies are now protected against unconscionable conduct under the Australian Consumer Law (ACL) and the Australian Securities and Investments Commission Act 2001 (ASIC Act).

The Treasury Laws Amendment (Australian Consumer Law Review) Bill 2018 (Bill) adopts various recommendations made in the Australian Consumer Law Review Final Report, including the recommendation that the unconscionable conduct protections be extended to cover publicly listed companies. The Bill received Royal Assent on 25 October 2018 and came into operation the following day, on 26 October 2018.

The unconscionable conduct protections

The prohibition against unconscionable conduct is set out in the ACL (and the ASIC Act with respect to financial services) and prohibits a person, in trade or commerce, from engaging in unconscionable conduct.

The prohibition against unconscionable conduct was originally available to consumers only. It was later extended to business transactions where the value of the transaction was less than $1 million. This was increased up to $3 million in 2001 and $10 million in 2007 until the monetary limit was removed completely in 2011.

What is unconscionable conduct?

Unconscionable conduct is not defined in the legislation, but rather, developed on a case by case basis by the Courts. To be considered unconscionable, conduct must be particularly harsh or oppressive and against conscience as judged against the norms of society.1

Courts have held that unconscionable conduct:

  1. Requires serious misconduct, something clearly unfair or unreasonable showing no regard for conscience;2
  2. Will commonly involve a party taking advantage of another’s special vulnerability or disadvantage in a way that is unreasonable and oppressive to an extent that affronts ordinary minimum standards of fair dealing;3 and
  3. Will involve moral fault and an intentional or reckless act.4

Courts will take into consideration a number of factors when determining if conduct is unconscionable. This includes (but is in no way limited to) the relative bargaining strength of the parties, the use of undue influence and the extent to which the parties acted in good faith.

The consequence of breaching the prohibition against unconscionable conduct is that a Court can determine that unconscionable conduct has occurred and declare a contract, in whole or in part, void. The Court may also order a party to be compensated or penalise the offending party.

The exclusion of publicly listed companies from the unconscionable conduct protections

Prior to the enactment of the Bill, publicly listed companies were excluded from the protection of the prohibition against unconscionable conduct. This exemption had blanket coverage and applied no matter the size of the listed company because public listing was seen as an indication of a trader’s size and ability to protect its own interests in commercial transactions.

In practice, this meant small publicly listed companies that often lack bargaining power were not protected and could be subjected to unconscionable conduct with no recourse. Further, privately-operated companies that may be larger or better resourced than some publicly-listed companies were protected, creating imbalance and inconsistent levels of protection against unconscionable conduct.

 The new law

The ACL and the ASIC Act now recognise that public listing is not necessarily a reflection of a trader’s size, level of resourcing or its ability to withstand unconscionable conduct. The amendment applies to acts or omissions that occur on or after the Bill commences.

Publicly listed companies now have the opportunity to turn their mind to the question of whether another business has acted unconscionably toward them and if so, it is open to them to make a claim in respect of that conduct, provided it occurred on or after 26 October 2018.

This article was written by Teresa Torcasio, Partner, Marian Ngo, Senior Associate and Sarah Roberts, Law Graduate.

Teresa Torcasio

P: +61 3 8644 3623

E: ttorcasio@hwle.com.au

1ACCC v Lux Distributors Pty Ltd [2013] FCAFC 90 [which involved Lux Distributors Pty Ltd taking advantage of 3 elderly women by deceiving them, firstly as to the purpose of the respondent’s services and secondly, subjecting them to unfair sale techniques which pressured the women to purchase their products].
2Cameron v Qantas Airways Ltd (1995) ATPR 41-417 [which involved an airline being wrongly accused of engaging in unconscionable conduct by allegedly seating a passenger in a smoking section when the passenger allegedly requested a non smoking seat].
3Commercial Bank of Australia v Amadio (1983) 46 ALR 402 [which involved a bank taking advantage of elderly immigrants by having them sign a guarantee knowing they were  unable to understand the contents of the documents].
4Australian Competition and Consumer Commission (ACCC) v 4WD Systems Pty Ltd (2003) 200 ALR 491 [which involved the respondents, operating a business of selling and fitting car parts, making misrepresentations to its franchise partners concerning compliance with industry standards and the quality of products].

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