Unconscionable Conduct

The Australian Consumer Law does not define “unconscionable conduct”, but prohibits a person or corporation engaging in conduct that is unconscionable “within the meaning of the unwritten law”.

The Australian Consumer Law allows the court to find unconscionable conduct in commercial dealings with regard to matters such as:

  • the relative strengths of the bargaining positions of the parties;
  • 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;
  • whether the customer was able to understand any documents relating to the supply or possible supply of the goods or services;
  • 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;
  • 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;
  • 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;
  • the requirements of any applicable industry code;
  • if there is a contract between the supplier and the customer for the supply of the goods or services:
  • the extent to which the supplier was willing to negotiate the terms and conditions of the contract with the customer; and
  • the terms and conditions of the contract; and
  • the conduct of the supplier and the customer in complying with the terms and conditions of the contract; and
  • any conduct that the supplier or the customer engaged in, in connection with their commercial relationship, after they entered into the contract; and
  • 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
  • the extent to which the supplier and the customer acted in good faith.

The unequal relationship between franchisors and franchisees may give rise to unconscionable conduct allegations.

Case Study – Australian Competition and Consumer Commission v South East Melbourne Cleaning Pty Ltd (in liquidation) (formerly known as Coverall Cleaning Concepts South East Melbourne Pty Ltd) [2015] FCA 25

Coverall was the Victorian operator of a cleaning franchise business. The ACCC alleged that Coverall had engaged in unconscionable conduct by:

  • entering into franchise agreements without disclosing matters required to be disclosed under the Franchising Code of Conduct;
  • engaging in misleading and deceptive conduct;
  • failing to remit payments to the franchisees for the cleaning services provided in circumstances where Coverall had received payment from the customer;
  • unfairly relying on the terms of the franchise agreements to require the franchisees to make payment of various fees and loan repayments and preventing them from terminating the agreements.

The Federal Court found that Coverall had engaged in unconscionable conduct. The Honourable Justice Murphy held that the Court’s task involved evaluating conduct by reference to a normative standard of conscience which may develop and change over time and which must be understood and applied in the context in which the circumstances of the case arise. In determining whether Coverall had engaged in unconscionable conduct, it was relevant to consider its misleading conduct towards the franchisees in contravention of the Australian Consumer Law and its contraventions of the Franchising Code of Conduct.

Looking at the entire circumstances of Coverall’s conduct towards each of the franchisees, his Honour found that Coverall did not act in good faith towards the franchisees and had sought to take advantage of its significantly stronger bargaining position at every step.

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