In the recent decision of ACCC v Quantum Housing Group Pty Ltd,[1] the Full Court of the Federal Court ('the Full Court') held that unconscionable conduct under section 21 of the Australian Consumer Law ('ACL') does not require the contravening party to exploit a vulnerability, disability or disadvantage of the victim.
The Full Court concluded that the correct approach is to focus on the conduct of the contravening party and to assess whether there is a sufficient departure from the norms of acceptable commercial behaviour as to be against conscience or to offend conscience.
Background
The National Rental Affordability Scheme ('NRAS') gives financial incentives to 'approved participants' to build and then offer rental properties, at low prices, to low and middle income earners.
Prior to its liquidation, Quantum Housing Group Pty Limited ('QHG') was an 'approved participant' of the NRAS.
As an 'approved participant', QHG entered into agreements with purchasers of investment properties who wanted to participate in the NRAS ('investors'). Under the agreements, QHG lodged the NRAS-compliance forms on behalf of the investors (as the 'approved participant'), and directed all financial incentives to the investors.
The investors engaged their own property managers to manage their properties and to ensure ongoing compliance with the NRAS. QHG was merely the conduit between the investors and the NRAS.
Between February 2017 and July 2018, QHG devised and executed the 'Roll Up Plan' in which QHG:
Issued rounds of misleading correspondence to at least 450 investors to pressure them to terminate the relationships with their current property managers and to engage property managers which were 'QHG-approved property managers'.
Failed to disclose to the investors its commercial associations with the QHG-approved property managers.
Unilaterally imposed accreditation guidelines requiring (among other obligations) property managers not approved by QHG to pay a $10,000 security deposit for no legitimate reason. This was designed to exclude property managers not approved by QHG.
Issued notices to investors that did not engage QHG-approved property managers stating that they were in default under their agreements with QHG, and therefore risked losing NRAS incentives (which was not true).
Refused to renew agreements with investors where property managers refused to pay the security deposit. This strategy was used to pressure investors to switch to QHG-approved property managers.
The ACCC instituted proceedings in the Federal Court seeking declarations that QHG:
engaged in misleading or deceptive conduct (ACL s18(1));
engaged in unconscionable conduct (ACL s21); and
made false representations (ACL s29(m)).
The Federal Court
The trial judge held that QHG engaged in misleading or deceptive conduct and made false or misleading representations in contravention of the ACL. However, his Honour did not find that QHG had engaged in unconscionable conduct contrary to section 21 of the ACL.
The trial judge applied the High Court's recent decision in ASIC v Kobelt[2] ('Kobelt') to support a finding that QHG did not engage in unconscionable conduct. In particular, the trial judge held that the decision in Kobelt meant that the exploitation of some vulnerability or disadvantage is a requirement to a finding of unconscionable conduct under section 21 of the ACL.
The trial judge was not satisfied that there was evidence of '… financial or other circumstances of the investors that would enable them to be characterised as being vulnerable or in a position of disadvantage of a kind that might expose them to being exploited or characterised'.[3]
Notwithstanding this, the trial judge ordered QHG to pay $700,000 in penalties and its sole director to pay a penalty of $50,000 for being knowingly concerned in QHG's conduct. The sole director was also banned from managing a corporation for three years.
The ACCC appealed to the Full Court.
The ACCC contended that the trial judge erred in not also making a finding on unconscionable conduct. The ACCC's position was that unconscionable conduct under section 21 of the ACL does not require, in every case, exploitation of some vulnerability or disadvantage.
The Appeal
The Full Court allowed the appeal and made a declaration that QHG engaged in unconscionable conduct in contravention of section 21 of the ACL.
Importantly, the Full Court considered the High Court decision in Kobelt in great detail and found (contrary to the trial judge's findings) that the decision did not mean that some vulnerability, disability or disadvantage is a requirement for a finding of unconscionable conduct under the ACL.
The Full Court held that assessing whether a party has engaged in unconscionable conduct for the purposes of section 21 of the ACL requires:
'… an evaluation of the impugned conduct to assess whether it is to be characterised as a sufficient departure from the norms of acceptable commercial behaviour as to be against conscience or to offend conscience and so be characterised as unconscionable.'[4]
The Full Court observed that while the exploitation of a vulnerability, disability or disadvantage was a common occurrence for a claim in unconscionable conduct, it is not strictly and necessarily a requirement to satisfy section 21 of the ACL.
Rather than assessing the characteristics of the victim, the Court has emphasised that the legal inquiry is to be into the conduct of the party alleged to have engaged in unconscionable conduct. This is consistent with the ACL prescribing a norm of conduct which, if contravened, gives rise to penalties (or other remedies).
The Full Court decision confirms that unconscionable conduct under section 21 of the ACL has a very wide scope, and protects not only those with a vulnerability, disability or disadvantage, but also those with high business acumen. This is distinct to unconscionable conduct under section 20 of the ACL (unconscionability' under the 'unwritten law' – also known as 'equitable unconscionability'), which requires a stronger party to knowingly exploit a 'special disadvantage' of another.
Of course, while this action involved the ACCC as a regulator, an individual claiming to have been harmed by unconscionable conduct may still be expected to show that they were, in fact, harmed or disadvantaged by the conduct. This is analogous to the situation of misleading statements being made to a person who does not believe them and does not act on them – there would be no loss suffered.
We would not be surprised if the bounds of unconscionable conduct under section 21 the ACL are tested by the ACCC or ASIC in the High Court in the near future.
To discuss your concerns about unconscionable conduct or competition and consumer issues generally, please contact Adam Rosser or John Vozzo.
This article provides general comments only and does not constitute legal advice. You should always seek specific advice on your particular circumstances.
[1] [2021] FCAFC 40 (Allsop CJ, Besanko and McKerracher JJ).
[2] (2019) 267 CLR 1.
[3][2020] FCA 802 at [32].
[4][2021] FCAFC 40 at [91].