Statutory unconscionable conduct is prohibited by section 21 of the Australian Consumer Law (ACL), which provides that a person must not act unconscionably in the supply or acquisition (or possible supply or acquisition) of goods and services. Unconscionable conduct is also prohibited under general common law principles. Under common law, a person will act unconscionably where they knowingly exploit or take advantage of a special disadvantage or disability of another party.
In the recent case of Australian Competition Consumer Commission v Quantum Housing Group Pty Ltd  FCAFC 40, the Federal Court widened the scope of statutory unconscionable conduct by holding that a person does not need to exploit a special disadvantage in order to be found guilty of unconscionable conduct under the ACL.
Quantum Housing Group Pty Ltd (Quantum) engaged in the business of arranging investments that qualified for National Rental Affordability Scheme (NRAS) incentives. The Australian Competition Consumer Commission (ACCC) commenced proceedings against Quantum, alleging that Quantum had made false and misleading representations and engaged in unconscionable conduct by pressuring investors to use property managers approved by Quantum.
The ACCC argued that Quantum:
- issued misleading correspondence to its investors aimed at breaking up the relationships between its investors and their property managers;
- told their investors that they would not be eligible for NRAS incentives if they did not appoint property managers approved by Quantum (which was not the case); and
- failed to disclose its commercial links to the property managers that it was recommending.
At trial, Quantum admitted to breaching the ACL by making false and misleading representations and engaging in unconscionable conduct. However, the trial judge held that Quantum was not liable for statutory unconscionable conduct as it had not taken advantage of or exploited a pre-existing vulnerability, disadvantage or disability of its investors.
Federal Court Appeal
On appeal by the ACCC, the Federal Court held that:
- while “some form of exploitation of or predation upon some vulnerability or disadvantage of people will often be a feature of conduct which satisfies the characterisation of unconscionable conduct” under the ACL, the existence of a special disadvantage and the exploitation of such disadvantage is not an essential element of statutory unconscionable conduct; and
- conduct will be unconscionable where it is “a sufficient departure from the norms of acceptable commercial behaviour as to be against conscience or to offend conscience”.
Accordingly, whether or not conduct will be deemed to be unconscionable for the purposes of the ACL will depend on how the conduct compares to acceptable commercial behaviour. It will likely be unconscionable to act in a way:
- that is systematically dishonest;
- entirely in bad faith in undermining a bargain;
- involving misrepresentation, commercial bullying or pressure and sharp practice, using a superior bargaining position;
- contrary to an industry code; or
- using significant market power to extract an undisclosed benefit.
In light of the above, the Federal Court found Quantum’s conduct to be unconscionable, as, despite the fact that their investors had no special vulnerability or disadvantage, Quantum’s conduct exhibited a dishonest lack of good faith. Accordingly, Quantum was found to have engaged in statutory unconscionable conduct and to have breached the ACL.
In light of the decision of the Federal Court, businesses engaging in trade or commerce will need to ensure that they always engage in commercially acceptable behaviour, regardless of whether or not their customers or clients a subject to a special disadvantage or disability.
If you have any questions or concerns related to unconscionable conduct and what may constitute commercially acceptable behaviour, please do not hesitate to contact us.