Equity and Trusts Law in Australia

Unconscionable conduct relates to conduct that goes against good conscience. The legal definition is non-existent as over the years it has been determined on a case-by-case basis by the Courts.

 The conduct needs to amount to more than being considered as unfair. The conduct must be considered to be against conscience in relation to the norms of society. Unconscionable transactions or dealings have been determined by the Australian Courts to be deliberate, involve serious misconduct or involve clear unfair and unreasonable conduct.

The objective of the principle was to uphold equity. The doctrine was established in practice in Blomley v Ryan (1956) by the High Court. Validity of the doctrine was then supported in Commercial Bank of Australia v Amadio (1983). Dealings and transactions have been set aside due to the intervening from Courts of equity as a result of unconscionable conduct. 

 ‘Conduct on the part of a party who stands to receive a benefit under a transaction which, in the eye of equity, cannot be enforced because to do so would be inconsistent with equity and good conscience.’[1]

 In many instances, unconscionable conduct has been referred to in dealings involving special disadvantage and knowledge of the disadvantage. It is required to consider what may be considered a special disadvantage and to what extent did the special disadvantage amount to entering into the transaction. ‘The whole transaction should properly be seen as flowing from the special disability which was evident to the bank and as being unfair, unjust and unreasonable.’[2] 

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 It is important to recognise that the application of the Australian Consumer Law provisions of unconscionable conduct are determined by the facts of each individual case, due to the lack of definition supplied by statute. Therefore, it is Court’s responsibility to consider all the elements in deciding what the conduct constitutes as. In comparison to the decision in Commercial Bank of Australia v Amadio (1983), the decision in ASIC v Kobelt (2019) is restrictive in the approach of the application of Australian Securities and Investments Commission Act 2001in relation to unconscionable conduct, in respect of a special disadvantage. 

Australian Consumer Law and Australian Securities and Investments Commission Act 2001

Unconscionable conduct was established in equity and is referred to under three provisions of the Competition and Consumer Act 2010 within Schedule 2 of the Australian Consumer Law. The ACL provides protections to consumers regarding the supply of goods and services, one being against unconscionable conduct. Under sections 20 – 22A unconscionable conduct is prohibited. 

S 20 (1) – A person in trade or commerce (Concrete Constructions (NSW) Pty Ltd v Nelson) must not engage in conduct deemed to be unconscionable that is within the meaning of the unwritten law from time to time. S 21 (1) A person in trade or commerce must not whilst in the connection with: (a) the supply or possible supply of goods or services to another; or (b) the attainment or possible attainment of goods or services from a person as a result of engaging in conduct that is, in all situations unconscionable. S 22 (1) refers to matters the court may make reference to for the purposes of s 21. The following factors are taken into consideration:

The bargaining power of the parties, whether the consumer understood the documents in relation to the transaction, whether undue influence or pressure was used against the consumer, the requirements of industry codes, if the supplier was unsuccessful to disclose risks or impacts to the interest’s of the customer and the degree the supplier and customer had acted in good faith.

These unconscionability provisions in the ACL are mirrored in relation to financial services, regulated by ss 12CA, 12CB and 12CC of the Australian Securities and Investments Commission Act 2001 (Cth).

 “The critical issue, however, with statutory unconscionability sections in the ACL is to what extent, if any, the meaning of unconscionable therein broader than that pursuant to equitable principles.”[3]

Commercial Bank of Australia v Amadio (1983)

In Commercial Bank of Australia v Amadio (1983) the transaction was held to be unenforceable as conduct of the bank was unconscionable. The conduct amounted to unconscionable conduct on behalf of the bank on the basis of, the Amadios being subjected to a situation in which they were of a special disadvantage, which had immensely affected the ability to create a judgment in regards to their own best interests and the banks knowledge or possible knowledge of that special disadvantage, which they had taken advantage of it unfairly in order to obtain a benefit. 

ASIC v Kobelt (2019)

Presented in one of the most recent cases on statutory unconscionability, a 4 – 3 split occurred in favour of Mr Kobelt’s conduct not amounting to unconscionable conduct, based on the following: Mr Kobelt’s conduct was not unconscionable as he did not take ‘unconscientious advantage’ of the vulnerability of his customers.[4] The fact that the Anangu customers voluntarily agreed to the contract with Mr Kobelt in relation to the book-up system, containing the basic knowledge of what that entailed and having the ability to frustrate the agreement by cancelation of their card or by directing that future payments to be credited elsewhere, Mr Kobelt did not hold an advantage over the Anangu customers amounting to unconscionable conduct.

 It was also stated that Mr Kobelt acted with the absence of dishonesty, with a degree of good faith and without exertion of undue influence on his customers. The conduct was deemed not against conscience, as his actions did not involve departing from accepted community standards when supplying the financial service, Chief Justice Kiefel and Justice Bell confirmed. Justice Keane agreed and in addition explained the test. In s 12 CB the word unconscionable, unlike the terms of unjust, unfair or unreasonable, which, in consumer protection are familiar, reflects a deliberate legislative choice to prohibit a certain sort of conduct. He went on to explain that, in its meaning, the element of exploitation is needed. Although exploitation was not seen to have occurred through Mr Kobelt’s actions, it was not considered that his conduct had the objective of acquiring a personal benefit. 

Justice Gageler, the 4^th member of the majority stated that the prohibited conduct by the section was ‘conduct that is so far outside societal norms of acceptable commercial behavior as to warrant condemnation as conduct that is offensive to conscience.’[5] Gageler J expressed that for a Court to make the determination that conduct was unconscionable is for the Court to condemn that conduct as offensive to a conscience knowledgeable by a sense of right and wrong and proper, in accordance to values that may be considered by the Court to prevail within contemporary Australian society.[6]

The minority dissented and involved Justice Nettle, Justice Gordon and Justice Edelman. It was stated by the three that a party will have taken advantage, unconscientiously of an innocent party when the party with the bargaining power had knowledge or ought to, of the special disadvantage, also stating that Mr Kobelt’s lack of dishonesty does not excuse his book-up system from being unconscionable. In equity, dishonesty is not a requisite to amount to unconscionable conduct.  

 Approximately 35 years ago a case where conduct of the stronger party in a commercial transaction constituted as unconscionable conduct on the grounds of special advantage. That special advantage being inability to comprehend English which hindered judgement when entering into the transaction and the stronger party being aware of the special disadvantage. The ACL protected them under relevant provisions. Fast forward to 2019, where similarly, another case has occurred although involving indigenous Australians. The customers were at a special disadvantage as they were located in remote communities, not financially stable, uneducated and had lacked financial literacy. The book-up system was also only exclusive to Indigenous customers, disclosure of risk was absent and deficiency of transparency. Trust was instilled in Mr Kobelt by the Anugu customers.

Although the majority affirmed that in this situation under statute that the conduct did not constitute as unconscionable. Referring to a statement argued by ASIC that if the system implanted by Mr Kobelt for the Anangu people would be without a doubt inappropriate conduct if it were to occur elsewhere in modern Australian society. It is also interesting to consider, that the decision could have constituted as unconscionable conduct if it were to occur perhaps at an earlier year.

The inconsistency by the Court is recognised, the now restrictive approach in regards to unconscionable conduct in s 20-22A of the ACL and ss 12CA – 12CC of the Australian Securities and Investments Commission Act 2001is recognised. The decision in ASIC v Kobelt (2019) has proven that the provisons nowadays for unconscionable conduct are inefficient and require reform. Although unconscionable conduct is determined by the facts of each individual case, the decision has provided an understanding into the evaluative progression, it does not supply adequate guidance for practitioners of what may or may not be considered as unconscionable conduct. The Consumer Action Organisation has requested the law to change on the grounds that the current does not work in supporting fair trading in reference to there being such a division as to the meaning of unconscionable conduct. The Fiancial Counselling Australia has also requested law reform and ASIC has notified that it will continue to work together on reform of book-up and to educate providers and consumers on ways that are fair and legal in regards to the way book-up may be provided.

Bibliography

• https://www.accc.gov.au/business/anti-competitive-behaviour/unconscionable-conduct

[1] Commercial Bank of Australia v Amadio (1983) 151 CLR 447, 461.

[2] Commercial Bank of Australia v Amadio (1983) 151 CLR 447, 461.

[3] Book.

[4] case

[5] Case 92.

[6] Case 93.