Statutory ‘unconcionability’ – does it apply to the ATO (just putting it out there…)?

I’ve just attended the Victorian Bar (Commercial Bar Association) seminar on statutory unconcionability (under s21 of the Australian Consumer Law and s12CC of the ASIC Act). I’ve attached the slide pack from the seminar and some seminal extracts. The main thrust of this seminar is that statutory unconcionability has now clearly thrown off the special (and limiting) facets of equitable unjonsicionability (special vulnerability etc.) and it has become a main stream right of action, of potentially very broad import. What, you might ask, does this have to do with tax (and I asked myself the same question). Well, it is not uncommon for taxpayers, and practitioners, to come across situations, where it appears (at least colloquially) that the Commissioner’s office has acted unconscionably. I’m just posing an (otherwise) unresearched idea, that statutory unconcionability might be pleaded against at least some types of behaviour, to emanate out of the ATO. There could be many shortcomings to this idea. For instance – the statutory provisions may reach that far (eg. consumer = taxpayer??). It may be that the Commissioner’s duty to collect tax trumps this statutory unconcionability. But I thought I’d just launch the idea, and see where it goes. I look forward to any comments, that readers might want to leave.

 

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Victorian Bar (Commercial Bar Association) seminar on statutory unconcionability – extracts from the ‘slide pack’

 

21 Unconscionable conduct in connection with goods or services

(1) A person must not, in trade or commerce, in connection with:

(a) the supply or possible supply of goods or services to a person; or

(b) the acquisition or possible acquisition of goods or services from a person;

engage in conduct that is, in all the circumstances, unconscionable.

…

(4) It is the intention of the Parliament that:

(a) this section is not limited by the unwritten law relating to unconscionable conduct; and

 

Statutory Unconscionability –ASIC Act (ACL s 21 is mirrored in the ASIC Act)

12CB Unconscionable conduct in connection with goods orfinancialservices

(1) A person must not, in trade or commerce, in connection with:

(a) the supply or possible supply of goods or financial services to a person; or

(b) the acquisition or possible acquisition of goods or financial services from a person;

engage in conduct that is, in all the circumstances, unconscionable.

…

(4) It is the intention of the Parliament that:

(a) this section is not limited by the unwritten law relating to unconscionable conduct; and

 

So what does “unconscionable” mean?

• No definition in either Act
• Not limited by equitable unconscionability
• Legislation identifies 12 matters the court may have regard to: ACL s 22 / ASIC Act s 12CC

A normative standard

“The task of the Court is the evaluation of the facts by reference to a normative standard of conscience. That normative standard is permeated with accepted and acceptable community values. In some contexts, such values are contestable. Here, however, they can be seen to be honesty and fairness in the dealing with consumers. The content of those values is not solely governed by the legislature, but the legislature may illuminate, elaborate and develop those norms and values by the act of legislating, and thus standard setting.

”ACCC v Lux Distributors [2013] FCAFC 90 at [23]

 

What values are relevant?

“The evaluation includes a recognition of the deep and abiding requirement of honesty in behaviour; a rejection of trickery or sharp practice; fairness when dealing with consumers; the central importance of the faithful performance of bargains and promises freely made; the protection of those whose vulnerability as to the protection of their own interests places them in a position that calls for a just legal system to respond for their protection, especially from those who would victimise, predate or take advantage; a recognition that inequality of bargaining power can (but not always) be used in a way that is contrary to fair dealing or conscience; the importance of a reasonable degree of certainty in commercial transactions; the reversibility of enrichments unjustly received; the importance of behaviour in a business and consumer context that exhibits good faith and fair dealing…”

Pacioccov ANZ [2015] FCAFC 50 at[296] 

 

ASIC v Kobelt [2019] HCA 18 (the only High Court authority at the moment but we await Jams 2 v Stubbings)

Plurality endorsed the normative standard approach, but Court starkly divided on the outcome.

4 judges held that the conduct was not unconscionable.

• KiefelCJ & Bell J: “…the customers understood the system and chose to enter into book-up credit contracts because it enabled them to purchase goods which they valued and which otherwise they may not have been able to acquire”: [78].
• GagelerJ: Insufficient evidentiary basis to “question the choice made by Mr Kobelt’sAnangu customers”, so cannot conclude it was unconscionable: [111].
• Keane J: The only member of the Court to hold that s 12CB required exploitation of vulnerability, and ASIC had not established that Mr Kobeltexploited his customers’ vulnerability: [115]. 

3 judges held that the conduct was unconscionable:

• Nettle & Gordon JJ: The system would have been unacceptable anywhere else in Australia. “It is no answer to say that the customers were Anangu people. It is no answer to say that the customers agreed”: [260].
• Edelman J: The system was “appalling”, and indigenous customers were faced with a “Hobson’s choice”: [278], [312]-[313].

 

Statutory unconscionability vs equitable unconscionable conduct (equitable elements are not necessary – statutory subsumes equitable)

Full Court recently confirmed that statutory unconscionability has no requirement of disadvantage or exploitation:

“The word is not limited to one kind of conduct … Surely to predate on vulnerable consumers or small business people is unconscionable. But why is it not also 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, behaving contrary to an industry code, using significant market power in a way to extract an undisclosed benefit that will harm others who are commercially related to the counterparty?”

ACCC v Quantum Housing Group Pty Ltd [2021] FCAFC 40 at [91]

The point of unconscionability (make ‘honesty’ and ‘fairness’ a required standard in Australian business)

The appellants engaged in a course of dishonest conduct with people, in circumstances where they intended that they would be trusted by those people. That can be seen as taking advantage of people’s honesty and the requisite degree of trust a person requires to undertake business. … Such requisite degree of trust is essential for the efficient conduct of commerce. … The point of unconscionability is to reinforce a standard of conduct in business dealings where honesty is valued and can be assumed..”

Ali v Australian Competition and Consumer Commission (2021) 394 ALR 227, [234]

 

Matters the court may have regard to – amongst the 12 listed (ACL s 22 / ASIC Act s 12CC)

• 22(1)(a): the relative strengths of the bargaining positions of the supplier and the customer
• 22(1)(d): whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the customer or a person acting on behalf of the customer by the supplier or a person acting on behalf of the supplier in relation to the supply or possible supply of the goods or services
• 22(1)(f) the extent to which the supplier’s conduct towards the customer was consistent with the supplier’s conduct in similar transactions between the supplier and other like customers
• 22(1)(j) if there is a contract between the supplier and the customer for the supply of the goods or services:(i) the extent to which the supplier was willing to negotiate the terms and conditions of the contract with the customer; and
  • (ii) the terms and conditions of the contract; and
  • (iii) the conduct of the supplier and the customer in complying with the terms and conditions of the contract; and
  • (iv) any conduct that the supplier or the customer engaged in, in connection with their commercial relationship, after they entered into the contract…
• ACL s21(4)(b): this section is capable of applying to a system of conduct or pattern of behaviour, whether or not a particular individual is identified as having been disadvantaged by the conduct or behaviour

 

The Victorian Bar (Commercial Bar Association) slide pack for its ‘unconscionability’ seminar

 

 

[Tax Month – November 2021 – Previous 2021] 28.11.21