The doctrine of unconscionable conduct can apply to dealings with consumers, not just because of the application of the common law and equitable principles, but also because of the statutory prohibitions contained in ss 20 and 21 of the Australian Consumer Law (ACL) (which is Sch 2 to the Competition and Consumer Act 2010 (Cth)). Mirror provisions also exist in ss 12CA and 12CB of the Australian Securities and Investments Commission Act 2001 (Cth) for dealings involving financial services.

Unconscionable conduct is prohibited:

• as a matter of general law, equity stepping in to undo transactions or a state of affairs which it would offend against conscience to allow to stand;

• under s 20 of the ACL, which is a statutory re-statement of the equitable principle referred to above, in the context of commercial transactions; and

• under s 21 of the ACL, which is a statutory prohibition against unconscionable conduct in connection with the supply or acquisition, or possible supply or acquisition of goods and services to persons other than listed public companies (ie consumers and businesses).

Note that amendments to the unconscionable conduct provisions of the ACL were passed on 25 November 2011. Prior to the passing of these amendments, the ACL provided for three prohibitions on unconscionable conduct, being the prohibition on unconscionable conduct within the meaning of the unwritten law and separate prohibitions on unconscionable conduct in dealings with consumers, and in dealings with other businesses (other than listed public companies). The amendments combine the latter two prohibitions into one prohibition in s 21 which applies in connection with the supply or acquisition, or possible supply or acquisition of goods and services to any person, be it a consumer or a business (other than a listed public company). The amendments also add a number of interpretative provisions aimed at clarifying when the prohibitions apply.

Unconscionable conduct must be distinguished from conduct which is merely misleading. While unconscionable conduct may also include an element of misleading conduct, the indicia of unconscionable conduct lies in the unconscientious use of a position of advantage over another.

At general law, equity can intervene to overturn transactions which have been made as the result of unconscionable conduct. Injunctions will lie to restrain persons from engaging in unconscionable conduct (including seeking to enforce agreements which have been made unconscionably). Persons who suffer loss and damage by reason of unconscionable conduct may also claim damages.

Damages and injunctions are also available for breach of ss 20 and 21 of the ACL. Breach of those sections also renders the party in breach liable to pay a civil pecuniary penalty of up to $1.1 million for corporations and $220,000 for individuals.

The doctrine of unconscionable conduct has been described by the High Court in Commercial Bank of Australia Ltd v Amadio as “an underlying general principle which may be invoked whenever one party by reason of some condition of circumstance is placed at a special disadvantage vis-a-vis another and unfair or unconscientious advantage is then taken of the opportunity thereby created.”

It is an equitable principle which will only apply where there is one party who is at a special disadvantage to another and conduct by that other party exploits that special disadvantage and goes beyond being unfair, such that it offends against conscience.

Section 20 of the ACL is a prohibition on unconscionable conduct in trade or commerce within the meaning of the unwritten law of the states and territories. As such, the prohibition restates the doctrine of unconscionable conduct referred to above, in the context of commercial transactions. It is important to bear in mind that the section does not apply unless the offending conduct occurs in trade or commerce.

The section does not contain a definition of unconscionable conduct. When considering whether there has been a breach of the prohibition in s 20, it is necessary not just to consider cases which consider breach of the section, but also those which deal with the general law doctrine.

See What is the prohibition on unconscionable conduct under the unwritten law?

Section 21 of the ACL is a specific statutory prohibition which applies to conduct in connection with the supply or acquisition, or possible supply or acquisition of goods or services to persons other than listed public companies, which means it is likely to be a risk for many facets of an in-house counsel’s business. It is not limited by the principles applying to the general law prohibition and covers:

• supply to and acquisition by consumers as well as supply to and acquisition by other businesses;

• systems of conduct or patterns of behaviour, whether or not a particular individual is identified as being disadvantaged; and

• where the conduct relates to a contract, the negotiation and formation of the contracts, the terms of the contract and the performance of the contracts.

See Unconscionability under s 21 of the ACL.

Unlike the situation with the prohibition on unconscionable conduct at general law and under s 20, the ACL does provide guidance as to the matters which a court may take into account when determining whether conduct is unconscionable. This guidance is found in s 22 of the ACL.

The matters set out in s 22 are not exhaustive and do not limit what a court can take into account. In general they include matters such as the relative strengths of the bargaining positions of the parties, whether the parties acted in good faith, whether any undue influence was used or unfair tactics employed, whether the terms of any contract were able to be understood and were reasonably necessary to protect the legitimate interests of the party requiring them and whether and how much the consumer/business could acquire similar or identical goods or services elsewhere.

See When will conduct breach s 21 of the ACL?