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Lecture

Unconscionable Conduct

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Department
Law
Course
JSB171
Professor
All Professors
Semester
Spring

Description
Nick Dowse Unconscionable Conduct Unconscionable Conduct – Structure of Answer 1. Issue: “Has [X] engaged in unconscionable conduct under Part IVA TPA when it [did naughty thing]?” 2. STOP: Check if you are dealing with financial services? a. If so, these are regulated under the ASIC Act (s 51AAB). b. Go to “Financial Services” notes. 3. Overview of provisions: a. S 51AA prohibits a corporation in trade or commerce from engaging in unconscionable conduct at common law/equity i. NOTE: Does not apply where either s 51AB or s 51AC apply. Have to rule those out first. b. S 51AB prohibits a corporation in trade or commerce from engaging in statutorily unconscionable conduct when supplying goods/services of a kind ordinarily acquired for personal, domestic or household use or consumption. i. Not the same kind of “unconscionable conduct” as at common law/equity. c. S 51AC prohibits a corporation in trade or commerce from engaging in conscionable conduct when supplying/acquiring goods to/from a small business. d. Thought process: s 51AB apply?  s51AC apply?  s 51AA apply? e. NOTE: Part IVA does not apply to financial services (s 51AAAB). 4. Section 51AA is a fallback provision and the effect of s 51AA(2) is that s 51AB and s 51AC must be eliminated before a person can rely on a contravention of s 51AA. So, do either of these sections apply? 5. Has [X] engaged in statutory unconscionability when supplying goods/services to [Y] (s 51AB TPA)? a. This provision contains a new notion of statutory unconscionability with no reference to unconscionability at general law. There is no definition of “unconscionable” in the TPA. b. The section essentially prohibits conduct that has a high level of moral obloquy (ACCC v Lux). c. Is the defendant a corporation or natural person caught by the TPA? i. Defined in s 4(1) TPA to include: 1. (a) is a foreign corporation; a. A corporation incorporated outside Australia. 2. (b) is a trading corporation formed within the limits of Australia or is a financial corporation so formed; a. To determine whether a corporation is a “trading corporation” need to use the current activities test (Hughes v WACA). i. Trading denotes providing goods or services for reward” ii. Must be “substantial” trading in relation to corporation’s overall activities, but not necessarily its sole or main activity. 1. Can still be a “trading corporation” if your core business does not result in “reward” but you still receive a large proportion of revenue from other trading activities (E v Australian Red Cross). b. A “financial corporation” is also defined in s 4(1) to mean: i. Banking (other than state banking) 1. Must be interstate banking ii. Insurance (other than state insurance) 1. Must be interstate insurance iii. Lending or borrowing money, as distinct from transactions that merely involve the use of money (Ku-ring-gai Co-op Building Society (No 12)) iv. Needs to be significant activities but not necessarily sole or main activities Page 1 of 15 Nick Dowse Unconscionable Conduct v. The term “financial corporation” is not a term of act, no special or settled legal meaning; merely describes a corporation which engages in financial activities or is intended to do so (State Superannuation Board v TPC). 3. (c) is incorporated in a Territory; or a. A company incorporated in Australian Capital Territory or Northern Territory. 4. (d) is the holding company of a body corporate of a kind above. ii. Can also apply to natural persons 1. Part IVA TPA extends to the engaging in conduct outside Australia by bodies corporate incorporated or carrying on business within Australia or by Australian citizens or persons ordinarily resident within Australia (s 5(1)). 2. The effect of s 6(2)(a) is to extend the operation of Part IVA TPA to: a. Conduct overseas where the person involved is an Australian citizen (s 6(2)(a)(i)); or b. Conduct occurring in interstate trade or commerce (s 6(2)(a)(ii)); or c. Conduct occurring in trade or commerce in a territory, between a state and territory, or between two territories (s 6(2)(a)(iii)); or d. Conduct supplying goods or services to the Commonwealth (s 6(2)(a) (iv)). 3. The effect of s 6(3) is to widen a reference to a “corporation” as including an individual (s 6(3)(b)) where that individual uses “postal, telegraphic or telephonic services” (s 6(3)(a)). a. i.e. where natural person uses telephone, internet, radio advertisement or television advertisement. iii. Can also apply to the Commonwealth Crown 1. TPA applies to the Commonwealth Crown “in so far as [it] carries on a business” whether that be directly, or by an authority of the Commonwealth (s 2A(1) TPA). a. An authority of Commonwealth is: i. A statutory corporation (s 4(1)); or ii. Corporation in which a statutory corporation has a controlling interest (s 4(1)). 2. The effect of s 2A(2) is to apply the TPA as if the Crown (or its authority) were a corporation. 3. The Crown is sometimes referred to as the “government” – it is a separate legal person a. Includes the executive branch of government, represented by the Ministries and Departments and officers who attend to its business b. Government departments are not separate legal entities (but they are still the Crown) 4. Three-step analysis to determine if government body is caught a. Step 1: Is the relevant entity the Crown? i. Does it enjoy the rights and privileges of the crown? ii. If it is a statutory corporation it is necessary to have regard to the particular legislation under which it was constituted to determine whether it has the status of the Crown iii. If the statute is silent, this suggests that the corporation is not the Crown. As a matter of statutory construction, it seems that the courts will require a clear indication that the corporation is the Crown b. Step 2: If it is the Crown, does it carry on a business? i. Instrumentality providing government printing services, crown decides to sell it off as a one-time measure = not carrying on a Page 2 of 15 Nick Dowse Unconscionable Conduct business, not a substantial activity (J S McMillan v Cwth) ii. Cwth contracting for goods/services for its own use = not carrying on business, public procurement in nature (GEC Marconi Systems) 1. Note: criticism from Finn J: a. ‘Government contracting (in procurement and otherwise) is of major significance in the economic life of this country… It is somewhat surprising, that when the State enters the market place to acquire goods or services, it should exempt itself from those norms of conduct considered appropriate to the conduct of trade and commerce that it has imposed upon the private sector as of course….” c. Step 3: If it is the Crown and does carry on a business (steps 1 and 2 satisfied), does one the exemptions apply? i. Exemptions in s 2C TPA: 1. Imposing or collecting taxes (s 2C(1)(a)(i)), or levies (s 2C(1)(a)(ii)), or fees for licences (s 2C(1)(a)(iii)); or 2. Crown bodies that merely grant licences in relation to goods/services (s 2C(1)(b) + 2C(3)) a. Taxi licences = exempt b. Operate private hospitals = exempt c. Licence/permit to acquire goods/services = NOT exempt 3. Wholly intra- or inter-governmental transactions (s 2C(1) (c)). ii. State or territory crowns are not bound by Part IVA TPA (s 2B). d. Is the conduct in “trade or commerce”? i. Generally requires conduct to be commercial in nature. ii. Consumer transactions involving acquisition of goods/services from a business will always occur in trade or commerce. iii. Most things will occur in “trade or commerce” so it’s easier to just list what’s NOT trade and commerce: 1. Personal tractions (private sale of property) (Argy v Blunts) a. Business-like steps could not convert a sale of a private residence into trade and commerce. b. However, if lending money at commercial interest rates, or investing in property may come within “trade and commerce”. 2. Lectures about religious matters (Plimer v Roberts) 3. Olympic selection (amateur sport) (Forbes v Aust Yachting Federation) 4. Educational and political campaigns (Orion v RSPCA (Vic)) 5. Misleading statement by one employee to another in the course of construction work on building site (Concrete v Nelson) iv. An employee may be liable under the state equivalent (s 9 FTA) if employer engaged in trade or commerce and conduct occurred in the course of trade or commerce. v. Must take place “in” trade and commerce 1. Not merely connected with or incidental to trade or commerce (Hearne v O’Rourke). vi. Includes almost all external transactions or communications carried out to further commercial interests. This includes trade between Australia and outside Australia (s 4(1) TPA). vii. Provision of professional services (lawyers, accountants, doctors etc) can come within “trade and commerce” (Bond v Theiss). Page 3 of 15 Nick Dowse Unconscionable Conduct viii. Government policy statements or announcements are unlikely to occur in trade or commerce (Unilan Holdings v Kerrin). 1. But if designed to encourage commercial transaction with crown, may come within. ix. The trade or commerce complained of does not need to be that of the defendant (Houghton v Arms). e. Are the goods consumer goods/services? i. S 51AB(1) only applies to goods/services of a kind ordinarily acquired for personal, domestic or household use or consumption (more restrictive definition than s 4B). ii. Objective test: for what purpose are goods of these kind ordinarily acquired? If personal, domestic or household = OK, otherwise, s 51AB doesn’t apply (s 51AB(5)). iii. S 51AB(1) does not apply to goods bought for the purpose of resupply (s 51AB(6)). f. Is the defendant’s conduct unconscionable? i. Section 51AB(2) lists the matters the court may characterise conduct as unconscionable (indicative, not exhaustive): 1. Relative strengths of the bargaining positions between parties (s 51AB(2)(a)); a. This comparison is not available at general law (Amadio) 2. Conditions imposed that are not reasonably necessary for the protection of legitimate interests of the corporation (s 51AB(2)(b)); a. Does the dominant party have any legitimate interest? Identify them. b. If so, did they go beyond what was reasonably necessary to protect those interests? c. TPA doesn’t expect people to deny self-interest, does not require a fiduciary relationship – but does expect party to not go beyond what’s needed. 3. Ability to understand documents relating to the transaction (s 51AB(2)(c)); 4. Whether any undue influence or pressure or unfair tactics were exerted on the consumer (s 51AB(2)(d)); 5. The amount and circumstances which the consumer could have got the goods/services from someone else (s 51AB(2)(e)). ii. Not unconscionable under s 51AB to institute proceedings/arbitration (s 51AB(3)). iii. Court cannot have regard to circumstances that were not reasonably foreseeable by the corporation at the time of the contravention (s 51AB(4)(a)). iv. Look for a high degree of moral obloquy (ACCC v Lux). v. Where salesman deliberately sets out to exploit weak and vulnerable customers (by yelling at them, not explaining the K, unusually high rates of credit interest) = unconscionable under s 51AB(1) (ACCC v Lux) 1. Focus on conduct of the wrongdoer, not on its effect on the consumer! vi. Must be proved that wrongdoer knew the consumer was vulnerable and ripe for exploitation (ACCC v Radio Rentals) 1. Must have actual knowledge of circumstances of vulnerability etc, constructive knowledge not enough. 2. Cannot aggregate information known to a number of different individuals in the company so as to give rise to a factual totality from which a dishonest intent might be inferred (Radio Rentals @ [178]-[179] per Finn J). a. Customer calling 329 times but all to different people = RR didn’t know vii. Focus must be on the dominant party: what did they know? (ACCC v Keshow) 1. Focus on the wrongdoer’s “way of operating” such as the following: a. Not offering consumers a written record of K terms b. Automatic deductions from bank accounts c. Conditions not reasonably necessary to protect his legitimate business interests d. Receipt of overpayments. Page 4 of 15 Nick Dowse Unconscionable Conduct g. Overall conclusion i. Has there been statutory unconscionability? ii. Remedies: damages, injunctions, other orders (s 82, 80, 87 TPA). Page 5 of 15 Nick Dowse Unconscionable Conduct 6. Has [X] engaged in statutory unconscionability when supplying goods/services to [small business] or acquiring goods/services from [small business] (s 51AC TPA)? a. Section 51AC is designed to protect small businesses from big businesses engaging in unconscionable conduct against them. i. But can also apply to all persons (other than listed public companies) where purpose for supply/acquisition is for “trade and commerce” (s 51AC(1) & (7)/(8)). b. This provision contains a new notion of statutory unconscionability with no reference to unconscionability at general law. There is no definition of “unconscionable” in the TPA. c. It is wider than constitutional unconscionability (Amadio). d. Extends to “situational” unconscionability arising from the matrix of commercial and legal circumstances of the parties. e. The focus is on the conduct and knowledge of the dominant party rather than the effect of the conduct on the small business. f. It is designed to target predatory conduct, exploiting the vulnerable. g. Does not go so far as to prohibit mere hard bargains or opportunistic behaviour – only prohibits deliberate bullying behaviour by big business. h. There must be malevolence (bad faith) in conduct. i. Is the defendant a corporation or natural person caught by the TPA? i. NOTE: Only s 51AC(1) requires the defendant to be a corporation!!! S 51AC(2) doesn’t!!!! ii. Defined in s 4(1) TPA to include: 1. (a) is a foreign corporation; a. A corporation incorporated outside Australia. 2. (b) is a trading corporation formed within the limits of Australia or is a financial corporation so formed; a. To determine whether a corporation is a “trading corporation” need to use the current activities test (Hughes v WACA). i. Trading denotes providing goods or services for reward” ii. Must be “substantial” trading in relation to corporation’s overall activities, but not necessarily its sole or main activity. 1. Can still be a “trading corporation” if your core business does not result in “reward” but you still receive a large proportion of revenue from other trading activities (E v Australian Red Cross). b. A “financial corporation” is also defined in s 4(1) to mean: i. Banking (other than state banking) 1. Must be interstate banking ii. Insurance (other than state insurance) 1. Must be interstate insurance iii. Lending or borrowing money, as distinct from transactions that merely involve the use of money (Ku-ring-gai Co-op Building Society (No 12)) iv. Needs to be significant activities but not necessarily sole or main activities v. The term “financial corporation” is not a term of act, no special or settled legal meaning; merely describes a corporation which engages in financial activities or is intended to do so (State Superannuation Board v TPC). 3. (c) is incorporated in a Territory; or a. A company incorporated in Australian Capital Territory or Northern Territory. 4. (d) is the holding company of a body corporate of a kind above. Page 6 of 15 Nick Dowse Unconscionable Conduct iii. Can also apply to natural persons 1. Part V TPA extends to the engaging in conduct outside Australia by bodies corporate incorporated or carrying on business within Australia or by Australian citizens or persons ordinarily resident within Australia (s 5(1)). 2. The effect of s 6(2)(a) is to extend the operation of Part V TPA to: a. Conduct overseas where the person involved is an Australian citizen (s 6(2)(a)(i)); or b. Conduct occurring in interstate trade or commerce (s 6(2)(a)(ii)); or c. Conduct occurring in trade or commerce in a territory, between a state and territory, or between two territories (s 6(2)(a)(iii)); or d. Conduct supplying goods or services to the Commonwealth (s 6(2)(a) (iv)). 3. The effect of s 6(3) is to widen a reference to a “corporation” as including an individual (s 6(3)(b)) where that individual uses “postal, telegraphic or telephonic services” (s 6(3)(a)). a. i.e. where natural person uses telephone, internet, radio advertisement or television advertisement. iv. Can also apply to the Commonwealth Crown 1. TPA applies to the Commonwealth Crown “in so far as [it] carries on a business” whether that be directly, or by an authority of the Commonwealth (s 2A(1) TPA). a. An authority of Commonwealth is: i. A statutory corporation (s 4(1)); or ii. Corporation in which a statutory corporation has a controlling interest (s 4(1)). 2. The effect of s 2A(2) is to apply the TPA as if the Crown (or its authority) were a corporation. 3. The Crown is sometimes referred to as the “government” – it is a separate legal person a. Includes the executive branch of government, represented by the Ministries and Departments and officers who attend to its business b. Government departments are not separate legal entities (but they are still the Crown) 4. Three-step analysis to determine if government body is caught a. Step 1: Is the relevant entity the Crown? i. Does it enjoy the rights and privileges of the crown? ii. If it is a statutory corporation it is necessary to have regard to the particular legislation under which it was constituted to determine whether it has the status of the Crown iii. If the statute is silent, this suggests that the corporation is not the Crown. As a matter of statutory construction, it seems that the courts will require a clear indication that the corporation is the Crown b. Step 2: If it is the Crown, does it carry on a business? i. Instrumentality providing government printing services, crown decides to sell it off as a one-time measure = not carrying on a business, not a substantial activity (J S McMillan v Cwth) ii. Cwth contracting for goods/services for its own use = not carrying on business, public procurement in nature (GEC Marconi Systems) 1. Note: criticism from Finn J: a. ‘Government contracting (in procurement and otherwise) is of major significance in the economic life of this country… It is somewhat surprising, that Page 7 of 15 Nick Dowse Unconscionable Conduct when the State enters the market place to acquire goods or services, it should exempt itself from those norms of conduct considered appropriate to the conduct of trade and commerce that it has imposed upon the private sector as of course….” c. Step 3: If it is the Crown and does carry on a business (steps 1 and 2 satisfied), does one the exemptions apply? i. Exemptions in s 2C TPA: 1. Imposing or collecting taxes (s 2C(1)(a)(i)), or levies (s 2C(1)(a)(ii)), or fees for licences (s 2C(1)(a)(iii)); or 2. Crown bodies that merely grant licences in relation to goods/services (s 2C(1)(b) + 2C(3)) a. Taxi licences = exempt b. Operate private hospitals = exempt c. Licence/permit to acquire goods/services = NOT exempt 3. Wholly intra- or inter-governmental transactions (s 2C(1) (c)). ii. State or territory crowns are not bound by Part V TPA (s 2B). 1. But s 7 FTA (Qld) still applies to QLD Crown. j. Is the conduct in “trade or commerce”? i. Generally requires conduct to be commercial in nature. ii. Consumer transactions involving acquisition of goods/services from a business will always occur in trade or commerce. iii. Most things will occur in “trade or commerce” so it’s easier to just list
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