Being taken advantage of in a way that offends the conscience is known as unconscionable conduct. The Trade Practices Act recognises that there may be circumstances where the manner in which a contract was executed was unconscionable, such as a disparity in bargaining power.
Supplying goods or services—s. 51AC
Small businesses need to know what to do if they have been the target of unconscionable conduct, and how to prevent it from happening. Section 51AC prohibits unconscionable conduct in small business transactions—that is, conduct which is 'in all the circumstances, unconscionable'. The value of the goods or services involved in the transaction must not exceed $10 million, and the business subjected to the conduct must not be publicly listed (a publicly listed company has its shares listed on the stock market).
Where either of these conditions is not met, s. 51AC will not apply. However, the business may have other remedies available under s51AA (general unconscionable conduct), or other areas of common or equity law.
Factors the court will consider
Section 51AC sets out several factors the court can consider in deciding whether conduct was unconscionable. They include, but are not limited to:
the relative bargaining strength of the parties
whether the stronger party imposed conditions that were not necessary to protect their legitimate business interest
the use of undue influence, pressure or unfair tactics
whether the weaker party could obtain supply on better terms elsewhere
whether the stronger party made adequate disclosure to the weaker party
the willingness of the stronger party to negotiate
the extent to which each party acted in good faith
the requirements of any relevant industry code
the existence and effect of any unilateral variation clauses.
These factors are not exhaustive and in determining whether an unconscionable act has occurred the court will consider the conduct as a whole, including other factors that have not been listed above.
Section 51AC builds on the more traditional concepts of unconscionable conduct under s. 51AA that apply to all commercial situations, not just the buyer–seller relationship. Section 51AA imports into the Trade Practices Act all of the equitable doctrines founded on the notion of unconscionability. In particular, the court has indicated that it may be willing to grant relief under s. 51AA when:
the stronger party unfairly exploits the weaker party's disadvantage
the stronger party relies on their legal rights to take advantage of the weaker party in a way that is harsh or oppressive
the stronger party allows the weaker party to rely on an incorrect assumption, or fails to disclose an important fact
one party benefits unfairly from the deal at the expense of the other party
the weaker party relies on a misrepresentation by the stronger party
the weaker party is unable to understand the deal, due to lack of experience or professional advice.
The above list is not exhaustive, and the application of s. 51AA continues to develop. It does not apply to situations covered by s. 51AB (which applies to consumer transactions) or s. 51AC, and also does not apply to financial services.
How can I stop this from happening to me?
While the unconscionable conduct provisions are an effective way to provide redress for unacceptable harsh commercial conduct, small businesses need to remember that prevention is always better than cure. It is far easier to stop a problem from getting out of hand in the first place than to try to remedy the damage afterwards. Small businesses can reduce the possibility of being a target of unconscionable conduct by, for example:
getting everything in writing
reading all the contracts carefully—not signing without reading them first
asking about anything they don't understand
getting professional advice when not sure
when unhappy with a deal, trying to negotiate or find a better offer.
Above all, remember that the unconscionable conduct provisions are not intended to solve all small business problems, and will not apply to situations where one party has simply made a poor deal. You should always exercise a high level of care when making important financial or business decisions.
If any of the issues described above apply to your business situation, you may care to lodge a complaint using the ACCC’s small business complaints form.
