Australia to Revise Regulation of “Unconscionable Conduct”

The speakers on the day, except the ACCC, all agreed that the current section 51AC had not performed, the courts had not “strayed very far from a very narrow concept” and the ACCC had achieved virtually nothing with only two successful cases over 10 years. 

Professor Zumbo is one of Australia’s leading academics and has been one of many at the forefront of arguing effectively to revamp the regulatory regime and law within the Australian franchising Inquiry. 

On “unconscionable conduct”, Professor Zumbo has submitted that to add a clear definition on “unconscionable conduct” while necessary, probably won’t achieve much at all, rather, he has offered a full suite of 12 initiatives including a statutory duty of good faith, that appear to have broad support from the Committee chaired by Senator Hurley.  

Professor Zumbo’s recommendations: 

(1) Inserting a statutory definition of the term “unconscionable” into s 51AC of the Trade Practices Act; 

(2) Inserting a statutory list of examples of the types of conduct that would ordinarily be considered to be “unconscionable” under s 51AC of the Trade Practices Act; 

(3) Having only one prohibition against unconscionable conduct within the Trade Practices Act [instead of 3 unused – s 51AA, AB & AC] to cover both consumer transactions and business to business relationships involving small businesses; 

(4) Expressly prohibiting bullying, intimidation, physical force, coercion or undue harassment in consumer transactions as well as business to business relationships involving small businesses; 

(5) Enacting a statutory duty of good faith; 

(6) Enacting a new legislative framework within the Trade Practices Act to deal with unfair contract terms in consumer transactions as well as in business to business transactions involving small businesses; 

(7) Amending the Trade Practices Act to provide that the Court can issue a class compensation order whereby a Court would, once a breach has been found in an action brought by the ACCC, have the power to compensate affected consumers and small businesses without the need for those consumers and small businesses to bring their own action or recovery proceedings; 

(8) Requiring that contractual documents be drafted in plain language; 

(9) Establishing an Australian Small Business Development Corporation responsible for providing policy leadership and advice on small business matters to the Federal Government, including in relation unethical conduct faced by small businesses in business to business relationships; 

(10) Establishing an Office of the Small Business Ombudsman within the Australian Small Business Development Corporation with specific responsibility to research and identify existing  and emerging areas of disputation in business to business relationships involving small businesses with a view to identifying strategies, mechanism or legal options for minimising such disputes; 

(11) Establishing an Expert Determination Scheme within the Australian Small Business Development Corporation with specific responsibility for finally resolving disputes in business to business relationships involving small businesses that remain unresolved following mediation; and 

(12) Establishing a dedicated Small Business Enforcement Unit within the ACCC with sufficient funding to undertake enforcement action for all breaches of the Trade Practices Act relating to business to business relationships involving small businesses; and with a specific mandate to pursue test cases to clarify the operation and to identify possible gaps in the application of the unconscionable conduct provisions of the Trade Practices Act, as well in the proposed new statutory duty of good faith and proposed new laws against unfair contract terms in business to business relationships involving small businesses. 

Professor Zumbo's proposed definition:

“For the purposes of this section “unconscionable conduct” includes anyaction in relation to a  contract or to the terms of a contract that is unfair,unreasonable, harsh or oppressive, or is contrary to the concepts of fairdealing, fair-trading, fair play, good faith and good conscience.” 

Prof. Zumbo: "The proposed definition represents a non-exhaustive definition of unconscionable conduct. Importantly, the use of word “includes” makes it clear that the proposed definition is intended to allow the existing judicial interpretation to be built upon through a statutory mandate that makes it clear that the concept of unconscionable conduct for the purposes of s 51AC of theTrade Practices Act is meant to cover all forms of unethical conduct.”

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Related reading:

Transcript of the Public Hearing 

Submissions to the Inquiry

Selected Publications from Professor Zumbo