Diagnosing unconscionable conduct—what does it mean for doctors?
The ACCC encourages vigorous competition and a robust approach to commercial and professional transactions. In general, businesses, professionals and consumers are free to organise their affairs as they see fit. The unconscionable conduct provisions of the Act exist to protect doctors when another party acts harshly or oppressively towards them. The ACCC will follow up complaints received from doctors that allege unconscionable conduct.
This leaflet aims to help doctors and practice managers understand their rights and obligations—as businesses, professionals and consumers—under the unconscionable conduct provisions of the Trade Practices Act 1974.
These provisions redress any harsh or oppressive use of an imbalance of bargaining power between businesses (including professional practices), as well as between consumers and businesses (including professional practices).
This leaflet provides general guidance on the laws relating to unconscionable conduct, particularly as they relate to doctors’ dealings with other businesses and professionals, and with their patients.
It will assist doctors and practice managers to:
understand what is unconscionable conduct
know what to do if they have been a victim of unconscionable conduct
avoid engaging in unconscionable conduct themselves.
Further detailed information on the unconscionable conduct laws as they apply in particular circumstances is available from ACCC offices or the ACCC infocentre (see below for contact details).
A key aspect of modern medical practice is conducting business transactions.
Generally, practices are free to organise their affairs as they see fit. This applies to negotiations and transactions that may be undertaken with larger and stronger parties, including:
suppliers of goods or services, such as pharmaceutical, banking and insurance companies
Unconscionable conduct involves the harsh or oppressive exploitation of a weaker party by a stronger one that goes beyond normal hard commercial or professional dealings, and offends good conscience. The provisions of the Act relating to unconscionable conduct cover:
commercial and professional dealings between businesses
protection for businesses and practices against harsh or oppressive business conduct (i.e. from suppliers, business customers, franchisors or landlords)
consumer transactions.
Unconscionable conduct can occur in both the negotiation process and the terms of a contract.
However, not all unfair conduct is necessarily unconscionable conduct, i.e. unfair conduct is not necessarily unlawful under the Act.
The unconscionable conduct provisions are aimed at preventing a party to a transaction in a superior commercial position from subjecting another party to harsh or oppressive behaviour.
It is important that business people and professionals may contract with each other with sufficient certainty, free from the risk that their agreements will be unnecessarily scrutinised after the fact. The courts have observed that they would prefer not to substitute their own judicial conscience for the decisions of business and professional people.
The law deals with situations where one business or professional acts in bad faith, employs unfair tactics or attempts to unreasonably extract benefits from another business or professional by using its size or bargaining power.
The Act prohibits unconscionable conduct in both commercial and professional dealings and in consumer transactions. It contains three relevant provisions.
Section 51AA prohibits unconscionable conduct in all commercial and professional situations, not just when buying or selling goods or services.
Section 51AC specifically prohibits one business or professional dealing unconscionably with another when supplying goods or services.
Section 51AB prohibits unconscionable conduct in transactions between businesses or professionals and consumers.
(Section 51AA may also apply in transactions between businesses or professionals and consumers.)
Unconscionable conduct in business and professional transactions
Unconscionable conduct under the common law
Section 51AA of the Act states that companies must not, in their business or professional dealings, engage in conduct that is unconscionable within the meaning of the ‘unwritten law’ of the Australian states and territories. Unwritten law is the common law that has developed through court decisions. ‘Unconscionable conduct’ then, is not defined in the Act.
This section broadly prohibits a party to a business or professional transaction, who is in a stronger bargaining position, from taking unreasonable advantage of the other party. It covers conduct that may or may not be related to goods or services, and includes actual acts as well as refusals to act.
The primary unconscionable conduct provisions in the Act are ss. 51AC and 51AB (see below). Section 51AA will not apply to situations of unconscionable conduct that are covered by these sections.
Unconscionable conduct in the context of s. 51AA refers to circumstances in which:
one party suffers from a special disadvantage in dealing with another
the disadvantage was sufficiently evident to the other party
the other party took unconscionable advantage of its superior position to obtain a benefit.
The categories of special disadvantage may include:
ignorance of important facts known to the other party
financial problems
infirmity or age
lack of understanding of the nature of the transaction
lack of assistance or explanation when these are necessary.
A special disadvantage is something that impairs a person’s capacity to judge what is in their best interests. Such a disadvantage may arise from a person’s capacity to understand the facts of a situation (e.g. due to English being their second language), or due to other more situational factors, such as the lack of a practical alternative.
A person is not in a position of special disadvantage simply because of inequality of bargaining power. A person with less bargaining power may not necessarily lack capacity to make a judgment about their own best interests. Many, perhaps even most, contracts are made between parties of unequal bargaining power, and the Act does not require parties to forfeit their advantages or neglect their own interests.
Section 51AC of the Act specifically prohibits a business or professional from dealing unconscionably with another (the target) in the supply or acquisition of goods or services.
For transactions conducted after 1 July 1998 the Act protects businesses and professionals that find themselves victims of harsh or oppressive behaviour by stronger parties with whom they have business dealings.
Unlike the unconscionable conduct principles developed by the courts (as described above), it is not necessary to show that the target suffered from a special disadvantage in dealing with the stronger party.
Section 51AC covers:
the supply or acquisition of goods or services in the course of trade or commerce (which includes professional practice)
transactions under $3 million
a target that is not a listed public company (e.g. a target whose shares are not traded on the stock market).
The Act sets out a non-exhaustive list of circumstances a court may consider in deciding if a party has engaged in unconscionable conduct:
the relative bargaining strengths of the parties
whether, as a result of the stronger party’s conduct, the target was required to meet conditions not reasonably necessary to protect the stronger party’s legitimate interests
whether the target could understand any documentation used
the use of undue influence, pressure or unfair tactics
the amount, terms and circumstances in which the target could have engaged in a similar transaction with another party
the extent to which the stronger party’s conduct was consistent with its conduct in similar transactions with others
the requirements of any applicable industry code (or any other code if the target acted in the reasonable belief that the stronger party would comply with it)
the extent to which the stronger party unreasonably failed to provide full and frank disclosure of matters affecting the target
the extent to which the stronger party was willing to negotiate the terms of any supply contract with the target
the extent to which each party acted in good faith.
The following example illustrates some factors that may be relevant when determining whether conduct may be considered unconscionable.
Example—Restrictions on ability to negotiate
In the course of negotiations between a small private country hospital and a large health insurer, the parties agree to a range of prices that the hospital may charge for various medical procedures.
The health insurer insists on having a specific clause in the contract stating that these negotiated prices are subject to any other lower price offered to any other user of the hospital facilities.
The effect of this clause is that the lowest price the hospital charges becomes the price available to the health fund. The hospital representatives feel they have no real choice but to accept the additional clause, as otherwise their patients will not be covered by the particular health fund (as the fund has threatened to withdraw).
In assessing whether or not this conduct may be unconscionable the following factors may be relevant:
the inequality of bargaining power between the health insurer and the hospital
the use of pressure by the health insurer (i.e. the ‘take it or leave it’ approach to including the lowest charge clause)
the extent to which the health insurer was willing to negotiate
whether the terms used were reasonably necessary to protect the commercial interests of the health insurer.
The guiding rule is that prevention is the best solution. Take care in your dealings to avoid problems that could jeopardise your practice.
To prevent problems from arising, ask those with whom you deal for clear details (in writing) about the transaction, especially if you are uncertain about the meaning of a contract clause, or you do not fully understand what is being said.
You could also seek professional advice to ensure that what you are agreeing to is reasonable and that you (and your spouse/partner if they are also signing) fully understand the transaction.
It is reasonable to expect the other party to:
give you information on matters that may affect your commercial or professional viability
provide information and payment to you in a timely manner
offer reasonable prices.
If a dispute arises:
raise it quickly with the party involved—don’t let problems worsen
make it clear what action you require to settle the dispute
put your concerns in writing to the other party.
If this fails, find out whether the other party has a complaint handling process and talk to their disputes expert. If they don’t have such a process, suggest a mediation service (you can find them listed in the Yellow Pages). Mediation can be a simpler, faster and cheaper way of resolving disputes and maintaining relationships.
If you are concerned that a party with which you are dealing is acting harshly or oppressively, the checklist below will help to identify whether the other party’s conduct might be unconscionable.
If you think their conduct might be unconscionable, you should contact your legal advisor. Alternatively, you may contact the ACCC which will consider whether the conduct breaches the Act. If the ACCC believes it does, it may take action on your behalf. Regardless of whether the conduct is a breach of the law or not, the ACCC will discuss the matter and the available options with you.
All the circumstances surrounding the conduct must be considered.
Questions to consider
If the answer is YES to one or more of the following questions, then the risk of unconscionable conduct is increased:
Does the size or strength of the other party put it in a substantially stronger bargaining position than you?
Are you being asked to comply with conditions that are not reasonably necessary to protect the other party’s legitimate commercial interests?
Did the other party exert any undue influence or use unfair pressure or tactics against you or any of your representatives?
Were the terms and/or the circumstances of the negotiation more onerous than generally apply elsewhere in similar transactions?
If the answer is NO to one or more of the following questions, then the risk of unconscionable conduct is increased:
Were you able to understand the documents? If not, why not?
If you were not able to understand the documents, did the other party suggest you should seek your own independent legal advice?
Did the other party disclose all the terms and conditions that could affect your commercial or professional viability?
Were you given any opportunity to negotiate the terms and conditions of the contract?
Please note that just because other doctors may have negotiated better terms than you, does not mean you are being treated unconscionably. In the vast majority of cases there will be valid reasons for the differences.
Remember, the commercial world—including running a medical practice—is all about negotiating terms and conditions and the best possible outcome. If you think the conditions are unfair, don’t sign. If in doubt, seek independent advice.
How the Act applies when negotiating with hospitals or health authorities
Many doctors in private practice, especially those in rural and regional Australia, are engaged as contracted visiting medical officers (VMOs) at their local hospital.
Doctors may negotiate VMO contracts, or contracts to provide other medical services, with government in various forms and at various levels, such as local hospitals through to state health departments.
The ACCC recognises the importance of doctors successfully negotiating such contracts, especially in rural and regional Australia. They are an important source of income for doctors and enable the provision of essential medical services to patients.
Following up allegations of unconscionable conduct arising in such contract negotiations is a priority for the ACCC.
However, it is important to note that some government departments (those discharging the executive functions of government under ministerial direction, such as state health departments) are not bound by legislation unless expressly stated, or by clear inference. State health departments are therefore likely to have Crown immunity.
Local hospitals or area health authorities however, may not have Crown immunity to the extent that they are engaged in trading activities. Whether a body is engaging in trading activities is determined by the particular circumstances.
The ACCC will follow up complaints received from doctors that allege unconscionable conduct in the negotiation of their VMO contracts. If you think you have been subject to unconscionable conduct when negotiating your VMO contract, contact the ACCC infocentre (see below for details).
Doctors, as professional people, must also be careful not to engage in unconscionable conduct themselves when treating patients. Reasonable precautions should be taken by doctors to avoid entering into arrangements with patients which may be considered unconscionable.
Section 51AB of the Act prohibits unconscionable conduct by companies when supplying personal, domestic or household goods or services to consumers.
The Act does not define unconscionable conduct, but sets out a non-exhaustive list of factors that a court may take into account in determining if conduct is unconscionable:
the relative bargaining strengths of the parties
the imposition of conditions not reasonably necessary to protect the supplier’s legitimate interests
whether the consumer understood any documentation used
the use of undue influence, pressure, or unfair tactics
how much the consumer would have had to pay, and under what circumstances, to buy equivalent goods or services from another supplier.
Patients can be vulnerable due to factors such as infirmity or age. You should take care that your actions do not unreasonably take advantage of them.
The ACCC may take administrative or court action against a party that has engaged in unconscionable conduct, depending on the nature of the conduct and ACCC priorities generally. The ACCC cannot pursue all complaints that it receives, and it must decide which to investigate and what remedy to seek.
It therefore remains vital that you know your rights and responsibilities and act on them as appropriate. The Act contains a right of private action for those who have suffered loss or damage as a result of offending conduct.
If a court determines that a party has engaged in unconscionable conduct, various remedies are available, including:
compensation for loss or damage
injunctions restraining similar conduct in the future
community service, probation or publicity orders
declarations that the conduct breached the law
findings of fact
other orders, such as declaring a contract void in whole or in part, varying the contract, or an order refusing to enforce a provision of a contract.
This ACCC publication was developed in consultation with the Health Services Advisory Committee (HSAC). The Australian Government established HSAC to promote consultation and the exchange of information between the ACCC and health professionals on matters relevant to the application of the Trade Practices Act.
The ACCC recognises the valuable contribution of the following HSAC member organisations and representatives. However, it is noted that this is an ACCC publication, the contents of which do not necessarily reflect the views of the organisations or persons represented on HSAC.
Independent chair The Hon. Mr Tim Fischer
Australian College of Rural and Remote Medicine Professor Ian Wronski
Australian Consumers’ Association Mr Chris Field
Australian Divisions of General Practice Dr Robert Walters
Australian Medical Association Professor Kerryn Phelps
National Rural Health Alliance Ms Lesley Fitzpatrick
The Royal Australian College of General Practitioners Dr David Thompson
Rural Doctors Association of Australia Dr Ken Mackey
Trade practices solicitor and barrister Mr Alan Limbury
