Director of Consumer Affairs Victoria v Scully

SUPREME COURT OF VICTORIA
COURT OF APPEAL

S APCI 2012 0244

PETER GERARD SCULLY

DIRECTOR OF CONSUMER AFFAIRS VICTORIA	Appellant
	v
PETER GERARD SCULLY ROBERT JAMES GILFILLAN	First Respondent
	Second Respondent

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JUDGES	NEAVE, OSBORN and SANTAMARIA JJA
WHERE HELD	MELBOURNE
DATE OF HEARING	5 September 2013
DATE OF JUDGMENT	18 October 2013 (Revised 21 October 2013)
MEDIUM NEUTRAL CITATION	[2013] VSCA 292 1^st revision 21 October 2013 para 43
JUDGMENT APPEALED FROM	Director of Consumer Affairs v Scully & Ors (No. 3) [2012] VSC 444 (Hargrave J)

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TRADE PRACTICES – Programs designed to allow people who could not obtain bank finance to purchase a home – Whether design and implementation of the programs unconscionable – Whether statutory unconscionability requires ‘moral obloquy’ – Whether decisions of other intermediate appellate courts plainly wrong – Held: (1) decisions of other intermediate appellate courts not plainly wrong; (2) moral obloquy required – Fair Trading Act 1999 (Vic) s 8(1) – Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485; Qantas Airways Ltd v Cameron (1996) 66 FCR 246; Hurley v McDonald’s Australia (2000) 22 ATPR 41-741; Attorney-General (NSW) v World Best Holdings Ltd (2005) 63 NSWLR 557; Australian Securities and Investments Commission v National Exchange Pty Ltd (2005) 148 FCR 132; Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389; Violet Home Loans Pty Ltd v Schmidt [2013] VSCA 56; Australian Competition and Consumer Commission v Lux Distributors Pty Ltd, [2013] FCAFC 90 considered and applied.

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Appearances:	Counsel	Solicitors
For the Appellant	Mr M J Colbran QC with Mr S Bhojani	Peter Hiland, Solicitor, Consumer Affairs Victoria
No appearances for the First Respondent
For the Second Respondent	Mr K J A Lyons SC with Mr J M Ross	Voitin Lawyers

NEAVE JA:

I have had the advantage of reading the draft reasons of Santamaria JA. I agree with him, for the reasons he gives, that the appeal should be dismissed.

OSBORN JA:

I have had the considerable advantage of reading the reasons of Santamaria JA in draft and I agree with them.

SANTAMARIA JA:

Introduction

Between 2000 and 2003, Peter Gerard Scully (Scully) and Robert James Gilfillan (Gilfillan) operated various companies which engaged in a series of programs that were devised to make it possible for people who could not raise housing finance from conventional sources to purchase their own homes.

Houses would be identified by persons wanting to acquire them. Scully and Gilfillan or employees of their companies would, then, introduce an investor who would purchase the relevant property. Thereafter, the person who wanted to acquire the house would enter into an agreement which would take the form either of a vendor’s terms contract or an option to purchase the property. The programs devised by Scully and Gilfillan had different names: the ‘Future Owner Program’ and ‘the Key Home Buyer Program’.

Scully and Gilfillan originally marketed the Future Owner Program through a company called Active Property Solutions Pty Ltd (Active Property). Scully and Gilfillan remained business partners until June 2003, when they parted ways. Thereafter, Gilfillan remained in control of Active Property. Later, he incorporated Active Group Pty Ltd (Active) to act as a second company for the promotion of the Future Owner Program. Scully also conducted business through various other companies. One of them, Key Result Pty Ltd (Key Result), marketed the Key Home

Buyer Program.

The trial judge explained that the principal point of difference between the programs was ‘the method by which future owners or home buyers would ultimately acquire title to the home’.[1] Thus:

(1)Under the future owner program, it was intended that the future owners would acquire title to the home by completing a contract to purchase it from the investor in five years time under a vendor terms contract. In the meantime, the future owners paid interest to the investor on the amount of the terms contract price.
(2)Under the key home buyer program, it was intended that the home buyers would acquire title to the home by exercising an option to purchase it from the Key Result at the end of a five year period. In the meantime, the home buyers paid above-market rent to the investor.[2]

[1]Director of Consumer Affairs Vic v Scully & Ors (No.3) [2012] VSC 444 (‘Reasons’).

[2]Reasons [11].

In 2011, the appellant commenced proceedings against Scully and Gilfillan and several other respondents, including one Michael Hansen (Hansen) (an employee of Active) in which it was contended, amongst other things, that the respondents had engaged in unconscionable conduct in contravention of s 8(1) of the Fair Trading Act 1999 (Vic) (‘the Act’). The appellant alleged that s 8(1) had been contravened in both general and in particular aspects.

In so far as there was a general claim for unconscionability, the appellant had sought declarations that Scully and Gilfillan and their associated companies had engaged in unconscionable conduct by participating in designing, marketing or supplying services (being household budgeting and financial management services and services brokering agreements for the purchase of a residential home and related agreements) known as the Future Owner Program and the Key Home Buyer Program to various classes of people characterised by their financial vulnerability combined with a wish to become owners of their own homes. In addition to the declarations, the appellant sought injunctions, publication orders, refunds, compensation and damages.

The trial judge dismissed the general claim in respect of the Future Owner Program[3] and upheld the general claim in respect of the Key Home Buyer Program.[4] In respect of the particular claims relating to the Future Owner Program, he dismissed both claims against Gilfillan[5] and allowed a claim against Hansen.[6]
[3]Reasons [148].
[4]Reasons [284].
[5]Reasons [263].
[6]Reasons [257].

The appellant now appeals only in respect of its general claim for unconscionability. The only respondents to the notice of appeal are Scully and Gilfillan. Only Gilfillan appeared on the appeal.

At trial, the respondents had contended that, to establish that conduct had been ‘unconscionable’ within s 8(1), it was necessary to establish ‘moral obloquy’. The appellant had contended that conduct could be found to be unconscionable in the absence of moral obloquy and that it was sufficient to establish that the conduct was unfair and ‘irreconcilable with what was right and reasonable’.[7]
[7]Reasons [24].

The trial judge rejected the contention of the appellant that ‘moral obloquy’ was not required. Having reviewed the authorities, he said:

It follows that the conduct in question must be more than negligent. It will usually involve some deliberate wrongdoing, although there may be cases where recklessness will suffice. For example, cases involving wilful blindness. Ultimately, as the cases demonstrate, each case must depend upon its own circumstances and the Court must make a value judgment as to whether to characterise the conduct with ‘the opprobrium of unconscionability’.[8]

[8]Reasons [31] (citations omitted).

Australian Securities Commission v Marlborough Gold Mines Ltd

In dismissing the general claims, the trial judge applied an interpretation of the word ‘unconscionable’ used in provisions cognate with s 8(1) that had been applied in several appellate courts in other Australian jurisdictions. Following the decision in Australian Securities Commission v Marlborough Gold Mines Ltd,[9] the trial judge held that he was bound to apply those interpretations unless he was convinced those decisions to be ‘plainly wrong’.[10] He was not so convinced.
[9](1993) 177 CLR 485 (‘ASIC v MGM’). Reference was to the Corporations Law which was applied uniformly throughout state jurisdictions by application legislation. See also Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89, 151-152 [135] (Gleeson CJ, Gummow, Callinan, Heydon and Crennan JJ); Casley v Australian BroadcastingCorporation [2013] VSCA 182, [73] (Hansen JA and Robson AJA).
[10]Reasons [32].

In ASIC v MGM, the High Court said:
It is somewhat surprising that the Full Court of the Supreme Court of Western Australia, and more particularly that Mr Commissioner Ng, declined to follow what was said by the Full Court of the Federal Court in Windsor. Although the considerations applying are somewhat different from those applying in the case of Commonwealth legislation, uniformity of decision in the interpretation of uniform national legislation such as the Law is a sufficiently important consideration to require that an intermediate appellate court - and all the more so a single judge - should not depart from an interpretation placed on such legislation by another Australian intermediate appellate court unless convinced that that interpretation is plainly wrong.[11]
As is evident, that rule applies as much to this Court as it did to the trial judge. This Court should not depart from the interpretations which other intermediate appellate courts have placed on the statutory word ‘unconscionable’ unless it is convinced that they are plainly wrong.
[11](1993) 177 CLR 485, 492 (Mason CJ, Brennan, Dawson, Toohey and Gaudron JJ).

This Court has itself essayed an interpretation of s 8 of the Act. In Violet Home Loans Pty Ltd v Schmidt,[12] this Court referred, with approval, to the tests for determining unconscionability formulated by the trial judge in this case.[13]
[12][2013] VSCA 56.
[13]Ibid [58] (Warren CJ, Cavanough and Ferguson AJA).

In Commissioner of State Revenue v Challenger Listed Investments Ltd,[14] Sifris AJA said:[15]
[14][2011] VSCA 272 (Buchanan and Tate JJA and Sifris AJA).
[15]Ibid [20]-[22] (with whom Buchanan and Tate JJA agreed).

Although the Court of Appeal is not strictly bound by its previous decisions (and those of the Full Court before it), a review of the authorities compels the conclusion that the Court of Appeal will only depart from one of its own previous decisions (or a decision of the Full Court) if that decision is plainly wrong.
In Clutha Developments Pty Ltd v Barry[16], Gleeson CJ said that it is only appropriate for an appellate court to overrule one of its earlier decisions where it has a ‘strong conviction’ as to the incorrectness of the earlier decision.[17] His Honour went further and said:
Where the point concerns the meaning of unclear statutory language, and the view expressed in the earlier decisions is well and truly open, a mere preference for a different view will not suffice.[18]

In Nguyen v Nguyen[19], the High Court considered whether an intermediate appellate court should regard itself as bound by its previous decisions. In a joint judgment, Dawson, Toohey and McHugh JJ said:
Where a court of appeal holds itself free to depart from an earlier decision it should do so cautiously and only when compelled to the conclusion that the earlier decision is wrong. The occasions upon which the departure from previous authority is warranted are infrequent and exceptional and pose no real threat to the doctrine of precedent and the predictability of the law. [20]

[16] (1989) 18 NSWLR 86.

[17] Ibid 100.

[18] Ibid.

[19] (1990) 169 CLR 245 (‘Nguyen’).

[20] Ibid 269 (citations omitted).

Similarly, in DPP v Patrick Stevedores Holdings Pty Ltd,[21] the Court said:
[21][2012] VSCA 300.

There is, however, considerable debate, and some uncertainty, as to the meaning to be accorded to the adjective ‘plainly’ in the context of the expression ‘plainly wrong’. The use of that adjective suggests something far more potent than mere disagreement.
In SZEEU v Minister for Immigration and Multicultural and Indigenous Affairs,[22] Allsop J, with whom Weinberg J agreed on this point, said that the Full Federal Court would follow its earlier decisions unless they were ‘plainly wrong’. His Honour added that this meant that the later Court had to be ‘convinced or persuaded’ of that error, and that this state of satisfaction could not be reached where the Court simply disagreed with the earlier decision.[23]
[22](2006) 150 FCR 214, 257.
[23]See also BHP Billiton Iron Ore Pty Ltd v National Competition Council (2007) 162 FCR 234, 253-4 (Greenwood J); Ying v Song [2009] NSWSC 1344; Gett v Tabet (2009) 254 ALR 504, 563, 566-7 (Allsop P, Beazley and Basten JJA).
In Gett v Tabet,[24] the New South Wales Court of Appeal observed that:
[24] (2009) 254 ALR 504, 565-6 (Allsop P, Beazley and Basten JJA).
The phrases “plainly wrong” or “clearly wrong” can be understood to focus on at least one or more of the following attributes of a ruling:
(a) the fact of error is immediately (in the sense mentioned in [283] above) apparent from reading the relevant judgment;
(b) the strong conviction of the later court that the earlier judgment was erroneous and not merely the choice of an approach which was open, but no longer preferred (compare Chamberlain and Clutha), and
(c) the nature of the error that can be demonstrated with a degree of clarity by the application of correct legal analysis.

In our view, the first possibility is liable to be highly subjective and should not be required, where the other two possibilities are satisfied. The existence of (b) and (c) is a precondition to the exercise of the power to depart from earlier authority.
The Court went on to say that the use of the ‘semantic label’ (clearly or plainly wrong’) should be seen as a ‘necessary, but not sufficient, condition for departure from earlier authority’. It said that such a course is not to be lightly undertaken, particularly where there is a possibility that the earlier decision had been applied consistently over time.[25]
Whatever view one takes of the meaning of the term ‘plainly wrong’, it obviously goes well beyond merely considering an earlier judgment to have been erroneously decided. ... [26]

[25]Ibid 566 citing John v Federal Commissioner of Taxation (1989) 166 CLR 417, 438-9 (Mason CJ, Wilson, Dawson, Toohey and Gaudron JJ).

[26][2012] VSCA 300, [113]-[117] (Maxwell P, Weinberg JA and Ferguson AJA).

In none of the cases to which the trial judge referred did the meaning of ‘unconscionable’ arise merely in passing. The body of authority relates to provisions which are truly cognate; they all concern the protection of consumers from different forms of unfair dealing.[27] The earliest decision seems to have been Cameron v Qantas Airways Ltd.[28] The most recent decision is that of this Court in Violet Home Loans Pty Ltd v Schmidt.[29] In every case in which there has been a holding of statutory unconscionability, there has been a finding that the conduct of the defendant showed a degree of moral taint: conduct which was unethical. In none of the cases has a court moved directly from a finding that conduct has been unfair or unreasonable to a holding that, for that reason alone, that conduct has been shown to be unconscionable.
[27]See Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389, [289]-[290] (Bathurst CJ, Allsop P and Campbell JA)
[28](1995) 55 FCR 147 (Beaumont J); sub nom Qantas Airways Ltd v Cameron (1996) 66 FCR 246 (Full Court).
[29][2013] VSCA 56.

The question before this Court is whether it is convinced that earlier decisions on the meaning of statutory unconscionability are ‘plainly wrong’. For the reasons that follow, I am not so convinced.

Notice of Appeal

The notice of appeal appears to be attractively simple and straightforward. It contends that the trial judge erred in holding that, to establish statutory unconscionability, it is not enough that the conduct is shown to be ‘objectively unfair, unjust, wrong or unreasonable’, and that he erred in holding that what must be established is that ‘the relevant conduct must include a significant element of moral obloquy’. For reasons which will appear below, the contrast between these general formulations may not be immediately obvious.

Several courts have said that, whether conduct should be described as ‘unconscionable’ depends, to a large extent, upon the particular facts of each case. In Kakavas v Crown Melbourne Limited,[30] the High Court said:

The decisions of this Court in which claims for relief from unconscionable conduct have been litigated, illustrate the necessity for close consideration of the facts of each case in order to determine whether a claim to relief has been established.[31]

In his judgment, the trial judge went carefully through each particular allegation made against the respondents and analysed the evidence which related to each allegation. When one reads his analysis of each particular allegation, the evidence propounded in favour of it, the questions which were put to the respondents in cross examination and, importantly, the questions which were not put to them, it is clear what the judge meant by the formulation he chose and why he rejected that of the appellant.

[30][2013] HCA 25.

[31]Ibid [14] (French CJ, Hayne, Crennan, Kiefel, Bell, Gageler and Keane JJ)(citations omitted).

The phrase ‘moral obloquy’ is not itself part of everyday discourse. Most people would have to consult a dictionary to be sure of its meaning. What the trial judge meant by it is evident from his reasons, particularly that part of his reasons extracted above.[32] The phrase suggests the very things that are suggested by other phrases such as ‘import(ing) a pejorative moral judgment’ or ‘highly unethical’.
[32]See [12] above.

In his notice of appeal, the appellant does not impeach any of the findings of fact made by the trial judge. Rather, the appellant would have this Court remit the matter to the trial judge and have him apply to his findings the formulation for the test of statutory unconscionability that the appellant prefers. There does not seem to be much utility in this course of action: it is not clear what the trial judge would make of it. The words ‘unfair’, ‘wrong’ and ‘unreasonable’ must be some of the most open textured words of the English language. They are capable of being predicated of all sorts of conduct over a broad spectrum. Had Parliament used these words to describe the conduct it wished to sanction, the statutory norm would have been one of uncertain application.

A related observation can be made about the other grounds of appeal. The trial judge, it is said, ‘ought to have concluded that conduct which is objectively unfair, unjust, wrong or unreasonable has the requisite moral character to constitute unconscionable conduct for the purposes of section 8’ of the Act and that statutory unconscionability includes such conduct that is ‘irreconcilable with what is right or reasonable’. It is true that some judges have spoken in terms of ‘objective’ unfairness or ‘objective’ unreasonableness.[33] But, where the question is the moral character of a defendant’s conduct, it can be unclear what is meant by ‘objective’ unfairness. When dealing with a provision that requires a showing that the defendant has been guilty of moral turpitude, it may, in some situations be enough to show that the defendant has been unfair or unreasonable. But, there are degrees of delinquency. And, showing no more than that a defendant has behaved unreasonably would not of itself be sufficient to merit the ‘moral opprobrium’ of unconscionability.[34]
[33]It is both unnecessary and undesirable to attempt to resolve the relationship between the objective and subjective elements of statutory unconscionability. However, the words of the Full Court of the Federal Court in Australian Competition and Consumer Commission v Lux Distributors Pty Ltd [2013] FCAFC 90, are pertinent. The Court said [41]:
The word “unconscionability” means something not done in good conscience … Notions of moral tainting have been said to be relevant, as often they no doubt are, as long as one recognises that it is conduct against conscience by reference to the norms of society that is in question. The statutory norm is one which must be understood and applied in the context in which the circumstances arise. The context here is consumer protection directed at the requirements of honest and fair conduct free of deception. Notions of justice and fairness are central, as are vulnerability, advantage and honesty.
[34]See Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389, [293] (Bathurst CJ, Allsop P and Campbell JA).

The bright line between the formulations referred to in the notice of appeal does not appear to have been present to the mind of the trial judge. Despite what is suggested in the notice of appeal, the trial judge did deploy the very formulation preferred by the appellant. As will appear below,[35] the trial judge held that, in his design, conduct and operation of the Key Home Buyer Program, Scully contravened s 8(1) of the Act. In holding that Scully’s conduct had been, in all the circumstances unconscionable, the trial judge summarised his analysis by finding that his conduct ‘was irreconcilable with what is right or reasonable’.[36]

The Fair Trading Act 1999 (Vic)[37]

[35]See [55] below.

[36]Reasons [280].

[37]The prohibition against statutory unconscionability is now embodied in s 21 of the Australian Consumer Law. The text of the Australian Consumer Law is the second schedule to the Competition and Consumer Act 2010 (Cth). The text of the schedule is given force of law in Victoria by s 8 of the Australian Consumer Law and Fair Trading Act 2012 (Vic).

The prohibition as it currently appears in the text of the Australian Consumer Law (Competition and Consumer Act 2010 (Cth) Sch 2, s 21(1)) is as follows:

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

(a)the supply or possible supply of goods or services to a person (other than a listed public company); or

(b)the acquisition or possible acquisition of goods or services from a person (other than a listed public company);

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

The current provision appears to have been inserted by the Competition and Consumer Legislation Amendment Act 2011 (Cth) s 4. The explanatory memorandum for that Act made the following observations:

2.13 This section does not define ‘unconscionable conduct’, but it also does not limit it to the concept as understood under the ‘unwritten law, from time to time’.

[…]

2.15 Section 21 does not apply to conduct relating to the supply or possible supply of goods or services to or from a listed public company. [Schedule 2, item 4, paragraphs 21(1)(a) and 21(1)(b) of Schedule 2] A listed public company is defined in section 2 of the ACL. Such companies do not require the protection of the unconscionable conduct provisions of the ACL.

This Act also inserted a considerable amount of material relating to the interpretation of s 21. The explanatory memorandum describes the principles so incorporated as ‘drawn from existing case law […] [t]he principles clarify, rather than alter, the effect of the statutory prohibition on unconscionable conduct’ (Explanatory Memorandum, Competition and Consumer Legislation Amendment Bill 2011, 21 [2.19]).

Sections 7 and 8 of the Act, as they stood at the relevant time, were contained in Part 2 of the Act.[38]
[38]In Kakavas v Crown Melbourne Limited [2013] HCA 25, the High Court considered an allegation that the defendant had engaged in unconscionable conduct contrary to s 51AA of the Trade Practices Act 1974 (Cth). Section 51AA corresponded to s 7 of the Fair Trading Act 1999.

Section 7, as it stood at the relevant time, provided:
Unconscionable conduct within the meaning of the unwritten law
(1)A person must not, in trade or commerce, engage in conduct which is unconscionable, within the meaning of the unwritten law, from time to time.
(2) This section does not apply to conduct that is prohibited by section 8.
Section 8 of the Act, as it stood at the relevant time, provided:
Unconscionable conduct
(1)A person must not, in trade or commerce, in connection with the supply or possible supply of goods or services of a kind ordinarily used for personal, household or domestic purposes to a purchaser, engage in conduct that is, in all the circumstances, unconscionable.
(2)Without in any way limiting the matters to which a court or the Tribunal may have regard for the purpose of determining whether a person has contravened subsection (1), a court or the Tribunal may have regard to –
(a)the relative strengths of the bargaining positions of the supplier and the purchaser; and
(b)whether, as a result of conduct engaged in by the supplier, the purchaser was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the supplier; and
(c)whether the purchaser was able to understand any documents relating to the supply or possible supply of the goods or services; and
(d)whether any undue influence or pressure was exerted on, or any unfair tactics were used against the purchaser or a person acting on behalf of the purchaser 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; and
(e)the amount for which, and the circumstances under which, the purchaser could have been supplied with identical or equivalent goods or services from a person other than the supplier.
As the trial judge pointed out, s 8 of the Act ‘and corresponding provisions in other statutes are intended to extend the concept of unconscionable conduct beyond equitable principle, to include conduct which is unconscionable within the ordinary meaning of that word’.[39]
[39]Reasons [23]. His Honour used the expression ‘statutory unconscionability.’

The origins of s 8(1) can be traced back to s 52A of the Trade Practices Act 1974 (Cth).[40] In its original form s 52A(1) of the 1974 Act provided:
[40]The section was added to the principal Act by s 22 of the Trade Practices Revision Act 1986 (Cth).

(1) A corporation shall not, in trade or commerce, in connection with the supply or possible supply of goods or services to a person, engage in conduct that is, in all the circumstances, unconscionable.

The 1974 Act was further amended by the Trade Practices Legislation Amendment Act 1992 (Cth) which commenced on 21 January 1993. The amended Act renumbered s 52A as s 51AB and grouped s 51AB with a newly introduced s 51AA in a new Part IVA of the Act headed “Unconscionable Conduct”.[41] In their new form, those sections provided:

Section 51AA(1) –
A corporation must not, in trade or commerce, engage in conduct that is unconscionable within the meaning of the unwritten law, from time to time, of the States and Territories.
Section 51AB(1) provided –
A corporation shall not, in trade or commerce, in connection with the supply or possible supply of … services to a person, engage in conduct that is, in all the circumstances, unconscionable.

[41]See Qantas Airways Ltd v Cameron (1996) 66 FCR 246, 267 (per Lindgren J).

The Authorities

Sections 51AA and 51AB of the Trade Practices Act 1974 (Cth) were considered by the Federal Court in Qantas Airways Ltd v Cameron.[42]
[42](1996) 66 FCR 246.

In that case Davies J said:
This is not an appropriate case in which to enunciate all possible denotations of the term “unconscionable” as it is used in ss 51AA and 51AB of the Trade Practices Act. It is sufficient for present purposes that the term carries the meaning given by the Shorter English Oxford Dictionary: “2. Of actions, etc: Showing no regard for conscience; irreconcilable with what is right or reasonable 1565.”[43]
[43]Ibid 262.
Lindgren J said, of the conduct of the defendant in that case:
Its conduct is far from attracting the epithet “unconscionable” or the various suggested synonyms for that term noted earlier, all of them correctly importing a pejorative moral judgment.[44]
[44]Ibid 283-4; The suggested synonyms were those found in the analysis by the trial judge (Beaumont J) of the word “unconscionable” in the relevant sections. Lindgren J said (at 281):
The trial judge discussed the meaning of “unconscionable” in ss 51AA and 51AB of the TP Act. He noted that the continuing provision, found formerly in s 52A and now in s 51AB, contains no definition of “unconscionable” but refers to certain matters to which, amongst others, a court may have regard for the purpose of determining whether a corporation’s conduct has been “unconscionable”. He noted that s 51AA, on the other hand, adopts the concept of unconscionability “within the meaning of the unwritten law, from time to time, of the States and Territories”.
His Honour referred to various judicial and academic observations as to the signification of the concept of unconscionability. He referred, for example, to references to victimisation, manipulation, exploitation, unfairness, unreasonableness, unscrupulous taking of advantage, and to one person’s taking advantage of another’s special vulnerability or misadventure. His Honour concluded that Qantas’s conduct in its policy of seat allocation did not bear any of these indicia of unconscionability.
See Cameron v Qantas Airways Ltd (1995) 55 FCR 147, 178-181 (Beaumont J).
In Hurley v McDonald’s Australia Ltd,[45] the Full Federal Court said:

[22] For conduct to be regarded as unconscionable, serious misconduct or something clearly unfair or unreasonable, must be demonstrated – Cameron v Qantas Airways Ltd (1994) 55 FCR 147 at 179. Whatever ‘unconscionable’ means in s51AB and s51AC, the term carries the meaning given by the Shorter Oxford English Dictionary, namely, actions showing no regard for conscience, or that are irreconcilable with what is right or reasonable – Qantas Airways v Cameron (1996) 66 FCR 246 at 262. The various synonyms used in relation to the term ‘unconscionable’ import a pejorative moral judgment – Qantas Airways Ltd v Cameron (1996) 66 FCR 246 at 283-284 and 298.
…

[31] Before s51AA, s51AB or s51AC will be applicable, there must be some circumstances other than the mere terms of the contract itself that would render reliance on the terms of the contract ‘unfair’ or ‘unreasonable’ or ‘immoral’ or ‘wrong.’[46]

[45][2000] 22 ATPR 41-741.

[46]Ibid [22] (emphasis in original), [31] (emphasis in original).

In Attorney-General (NSW) v World Best Holdings Ltd,[47] Spigelman CJ discussed the use of the term ‘unconscionable’ found in s 62B of the Retail Leases Act 1994 (NSW).[48] He said:
[47](2005) 63 NSWLR 557.
[48]Section 62B of the Retail Leases Act 1994 (NSW) was modelled on s 51AC of the Trade Practices Act 1974 (Cth). See Attorney-General (NSW) v World Best Holdings Ltd (2005) 63 NSWLR 557, 565 [18] - [22] (per Spigelman CJ).

Over recent decades legislatures have authorised courts to rearrange the legal rights of persons on the basis of vague general standards which are clearly capable of misuse unless their application is carefully confined. Unconscionability is such a standard.
Unconscionability is a well-established but narrow principle in equitable doctrine. It has been applied over the centuries with considerable restraint and in a manner which is consistent with the maintenance of the basic principles of freedom of contract. It is not a principle of what “fairness” or “justice” or “good conscience” requires in the particular circumstances of the case. As Deane J put it in Muschinski v Dodds (1985) 160 CLR 583 at 616:
“… [P]roprietary rights fall to be governed by principles of law and not by some mix of judicial discretion …, subjective views about which party ‘ought to win’ … and ‘the formless void of individual moral opinion’ … Long before Lord Seldon’s anachronism identifying the Chancellor’s foot as the measure of Chancery relief, undefined notions of ‘justice’ and what was ‘fair’ had given way in the law of equity to the rule of ordered principle which is of the essence of any coherent system of rational law. The mere fact that it would be unjust or unfair in a situation of discord for an owner of a legal estate to assert his ownership against another provides, of itself, no mandate for a judicial declaration that the ownership in whole or in part lies, in equity, in that other … .”

To similar effect are the observations of Dean (sic) J, with whom Gibbs CJ, Mason J, Wilson J and Dawson J concurred, when rejecting the proposition that the common law recognised a tort of unfair competition. His Honour described the concept as “a cause of action whose main characteristic is the scope it allows, under high-sounding generalizations, for judicial indulgence of idiosyncratic notions of what is fair in the market place”. (Moorgate Tobacco (1984) 156 CLR 414 at 445–446.)
The Ministerial second reading speech, quoted (at 581 supra), indicates a similar concern to distinguish what is unconscionable from what is merely unfair or unjust. Even if the concept of unconscionability in s 62B of the Retail is not confined by equitable doctrine, as the decisions under s 51AC of the Trade Practices Act (Cth) suggest, restraint in decision-making remains appropriate. Unconscionability is a concept which requires a high level of moral obloquy. If it were to be applied as if it were equivalent to what was “fair” or “just”, it could transform commercial relationships in a manner which the Minister expressly stated was not the intention of the legislation. The principle of “unconscionability” would not be a doctrine of occasional application, when the circumstances are highly unethical, it would be transformed into the first and easiest port of call when any dispute about a retail lease arises.
The original statutory scheme recognised that judges who have had the experience of serving on the Supreme Court or the Federal Court are used to approaching questions of “unconscionability”, including in a statutory context, with an appropriate level of restraint. Others, including legal practitioners, whose primary experience is the representation of the interests of particular parties, could well be seen as likely to approach the task of determining unconscionability by a principle of what is “fair” or “just” in all of the circumstances of the case. Non-judicial members with industry backgrounds could readily be so regarded.[49]

[49](2005) 63 NSWLR 557, 583-584 [119]-[122].

In Australian Securities and Investments Commission v National Exchange Pty Ltd[50] it was alleged that there had been a contravention of s 12CC(1) of the Australian Securities and Investments Commission Act 2001 (Cth). Section 12CC prohibited unconscionable conduct by a person in trade or commerce in connection with the supply of financial services.[51] Insisting that there was ‘no foundation in the language or purpose of s 12CC to impose limitations from the unwritten law, such as the necessity to identify a specific or particular person’,[52] the Court continued:

“Unconscionable conduct”, on its ordinary and natural interpretation, means doing what should not be done in good conscience. In a case where the discrepancy in price and value is great, as in the present case, and the conduct is systematically and directly focused on vulnerable but unnamed members, some of whom who can be expected to accept the offers, such conduct can reasonably be described as being against good conscience. The targeted offerees in this case could reasonably be expected to include persons who are unacquainted with share values, inexperienced in trading their interests, lacking in commercial experience and some of whom act inadvertently and are elderly. The evidence shows that Tweed believed from his past experience that such persons were more likely to accept the offer.[53]

[50](2005) 148 FCR 132; also see [50] below.

[51]Section 12CC was in the same form as s 8 of the Fair Trading Act 1999. In Aevum Ltd v National Exchange Pty Ltd (2004) 142 FCR 316, 321 [18]-[19], Emmett J explained the difference between the operation of s 12CB(1) and s 12CC(1)(a) of the ASIC Act. Section 12CB(1) prohibited unconscionable conduct in the supply or possible supply of financial services by persons. However, under s 12CB(5), a reference in s 12CB to financial services is a reference to financial services of a kind normally acquired for personal, domestic or household use. Section 12CB(2) identified matters to which the Court may have regard for the purposes of determining whether a person had contravened s 12CB(1). Section 12CC(1)(a) similarly prohibited unconscionable conduct in the supply or possible supply of financial services. However, under s 12CC(6) a reference in s 12CC to the supply or possible supply of financial services is a reference to the supply or possible supply of financial services to a person whose acquisition or possible acquisition of the financial services is, or would be for the purpose of trade or commerce. Section 12CC(2) identified the matters to which the Court may have regard in determining whether these had been a breach of s 12CC(1).

[52](2005) 148 FCR 132, 140 [30] (Tamberlin, Finn and Conti JJ).

[53]Ibid 140-141 [33].

Are the authorities plainly wrong?

As other courts have observed, it is undesirable to attempt a comprehensive definition of the word ‘unconscionable’ as it appeared in s 8(1) of the Act and in cognate provisions. That said, some general observations can be made.

First, it has now been firmly decided that the use of the word in s 8 is intended to have its ordinary meaning, and is not to be confined, as s 7 is confined, to notions of unconsionability that have developed in courts of equity.[54]
[54]See Body Bronze International Pty Ltd v Fehcorp Pty Ltd [2011] VSCA 196, [86]-[87] (Macaulay AJA, Harper and Hansen JJA agreeing); Trans Petroleum (Australia) Pty Ltd v White Gum Petroleum Pty Ltd [2012] WASCA 165, [171] (Buss JA, Pullin and Murphy JJA agreeing); A-G (NSW) v World Best Holdings Ltd (2005) 63 NSWLR 557, 566 [21](Spigelman CJ).

Second, the word “unconscionable” is an epithet, and, in the provision, it is predicated of “conduct”. Care has to be taken when one’s attention is drawn to the circumstances that afflict some people. For example, it may be said that a party gained ‘an unfair or unconscientious advantage’, or that a mortgage was ‘unfair, unjust or unreasonable’. Obviously enough, a person’s conduct is to be distinguished from the consequences that that conduct may have on the lives of other people. As the High Court recently said, albeit in the context of a claim under the equivalent of s 7 of the Act: ‘the principle which the appellant invokes is not engaged by the circumstance that a plaintiff’s transaction with a defendant has resulted in loss to the plaintiff, even loss amounting to hardship’.[55] Well intentioned conduct may have dire consequences for other people; malign conduct may be without consequence; adventitiously, it may have benign consequences. Generally speaking, it will be the consequences of one person’s conduct upon others that attracts the attention of the law. The problems of some vulnerable groups of people have been exacerbated by another person’s conduct. However, those consequences having, as it were, attracted the attention of the law, attention then properly shifts back to the nature of the conduct of the putative defendant. The fact that the circumstances of a person or a group of persons, or the circumstances of some transaction they entered into, may reasonably be described as ‘unfair’ is the commencement of the enquiry, not its terminus.
[55]Kakavas v Crown Melbourne Limited [2013] HCA 25, [19] (French CJ, Hayne, Crennan, Kiefel, Bell, Gageler and Keane JJ)

Third, equity’s exploration over the years of the manifold and novel ways in which the strong can exploit the weak, in trade and commerce or otherwise, will usually be of assistance in assessing whether it should be said that conduct has been unconscionable.

Fourth, the third observation is borne out by the content of s 8(2). It describes several matters to which a court or tribunal may have regard in determining whether a person may be said to have engaged in conduct that is, in all the circumstances, unconscionable. The presence of one or more of those matters, without more, does not mean that conduct has been unconscionable.

However, even though the concept of unconscionability is not closed and will be apt to describe exploitative conduct that has yet to be observed, the matters referred to in s 8(2) help illuminate its meaning. As Macaulay AJA said in Body Bronze International Pty Ltd v Fehcorp Pty Ltd:[56]

Not only do these factors assist in comprehending the intended scope and meaning of unconscionable conduct prohibited by the section, but they also provide a useful, although non-exhaustive, set of factors by which to test the particular conduct in question.[57]

[56][2011] VSCA 196.

[57]Ibid [76] (Harper and Hansen JJA, agreeing).

So, suppliers may be at risk if they simply disregard the ‘relative strengths of the bargaining positions’ that may in some cases exist between themselves and particular purchasers; s 8(2)(a). A disproportion in the bargaining positions of a particular supplier and a particular purchaser will not, of itself, make the conduct of the supplier unconscionable. But, where the scales are weighted against a purchaser, opportunities for the exploitation of the vulnerable arise more readily and, if taken advantage of, may well involve conduct that is, ‘in all the circumstances’ unconscionable. Or, take s 8(2)(c): ‘whether the purchaser was able to understand any documents relating to the supply or possible supply of the goods or services.’ Contractual documents are in English, but the range of possible purchasers includes many people who have no grasp of the significance of words that they are asked to subscribe. There was a time when, whatever equity had to say, the law simply cautioned the buyer to beware. If nothing else, the matters in s 8(2)(c) have made it plain that the law is no longer indifferent to the morality of what has taken place between supplier and purchaser.

Fifth, s 8(2) makes clear that qualities of unreasonableness and unfairness in the circumstances it specifies are not to be regarded as automatically rendering conduct unconscionable, but rather are matters to which regard is to be had in determining whether conduct is unconscionable.[58] They are indicia of unconscionability.
[58]See Body Bronze International Pty Ltd v Fehcorp Pty Ltd [2011] VSCA 196, [80] where the matters referred to in s 8(2) had not been demonstrated to show any unfairness in dealing.

Sixth, a court must explain what it understands by the words and phrases in a statutory provision and, in order to do so, will necessarily use words and phrases different from those contained in the provision. But, the use of the latter words and phrases is for a strictly limited purpose: they are to explain the former, not to replace them. As French CJ, Hayne, Crennan, Bell and Gageler JJ said in Federal Commissioner of Taxation v Consolidated Media Holdings Ltd:[59] ‘This Court has stated on many occasions that the task of statutory construction must begin with a consideration of the [statutory] text’.[60] And, it must not drift from that text; the statutory text must anchor the ‘task of construction’. There is much force in the caution given, in Canon Australia Pty Ltd v Patton,[61] by Basten JA against substituting what might be thought to be helpful synonyms for the statutory words. He said:

However, to treat the word “unconscionable” as having some larger meaning, derived from ordinary language, and then to seek to confine it by such concepts as high moral obloquy is to risk substituting for the statutory term language of no greater precision in an attempt to impose limits without which the Court may wander from well-trodden paths without clear criteria or guidance. That approach should not be adopted unless the statute clearly so requires.[62]

[59](2012) 87 ALJR 98; (2012) 293 ALR 257.

[60](2012) 87 ALJR 98, 107 [39]; (2012) 293 ALR 257, 268.

[61][2007] NSWCA 246.

[62]Ibid [4].

Seventh, s 8 of the Act applies to conduct ‘in trade or commerce, in connection with the supply or possible supply of goods or services’. That context is itself largely governed by existing legal principle. One is mindful of what Spigelman CJ said in the extract from Attorney-General (NSW) v World Best Holdings Ltd:[63] ‘If it (the concept of unconscionability) were to be applied as if it were equivalent to what was “fair” or “just”, it could transform commercial relationships . . . The principle of ”unconscionability” would not be a doctrine of occasional application, when the circumstances are highly unethical, it would be transformed into the first and easiest port of call when any dispute about a retail lease arises.’[64] The law of contract and that of property, and the principles that constitute them, are the very things which make trade and commerce possible. Without these legal principles, and the existence of institutions such as the courts that are constrained to apply them, the strong would prevail and the weak would go to the wall. It cannot have been the legislature’s intention to interfere with arm’s length commercial transactions by reference to loose notions of unreasonableness and unfairness. The contention favoured by the appellant that conduct may be found to be unconscionable within s 8(1) of the Act if it can be found to be irreconcilable with what was right and reasonable overlooks the force of the observation of Deane J in Muschinski v Dodds[65] that judges in equity, whose jurisdiction was discretionary, had long since abandoned recourse to undefined notions of justice and what was fair. The legislature is presumed not to alter basic common law doctrines and not to interfere with proprietary rights.[66]
[63](2005) 63 NSWLR 557.
[64]Ibid 583 [121].
[65](1985) 160 CLR 583, 616.
[66]See DC Pearce and RS Geddes, Statutory Interpretation in Australia (LexisNexis Butterworths, 6^th ed, 2006) 179-185.

Eighth, s 8(1) uses the phrase ‘in all the circumstances’. The characterisation demanded by the provision is one that is to be made ‘in all the circumstances’. Consideration of ‘all the circumstances’ can cast a different complexion on things. A failure to fulfil a contractual promise may visit unwanted consequences on the innocent party. But, under s 8(1), it is the conduct of the contract breaker that must be shown to be unconscionable. That party may have had sound reasons for breaking the contract, reasons that involve no wish to exploit any vulnerability in the innocent party. While these sound reasons will be of no significance in defence of a claim for breach of contract, they may be highly relevant in a defence to a claim that conduct has been unconscionable. In Body Bronze International Pty Ltd v Fehcorp Pty Ltd,[67] Macaulay AJA said:

A decision may be taken to break a contract because, upon rational commercial considerations, the burden of performance may be greater and more onerous than the liability to be incurred if the conduct amounts to breach. The party committing the breach may know that it will deliver to the opposite party an opportunity to exercise rights both under and outside the contract that flow from the breach, and that the opposite party has the means to exercise and enforce those rights. Those rights may include seeking injunctive relief to restrain the breach, accepting a repudiation of the contract so as to terminate executory obligations and seeking damages, or keeping the contract on foot and merely seeking damages. There may be nothing offensive to conscience in a commercial participant taking such a commercial decision in given circumstances. Whether or not it amounts to unconscionable conduct does not simply flow from it being a deliberate breach; it must be evaluated in ‘all the circumstances’.[68]

[67][2011] VSCA 196.

[68]Ibid [92] (Harper and Hansen JJA agreeing).

Ninth, a distinctive quality of unconscionable conduct as against unreasonable or unfair conduct is that it is unethical. The characteristic of unreasonableness or unfairness may form the basis (or a significant part of the basis) of a conclusion that conduct is unconscionable. As Allsop P said, in Tonto Home Loans Australia Pty Ltd v Tavares,[69] it is necessary to show at least ‘some degree of moral tainting in the transaction of a kind that permits the opprobrium of unconscionability to characterise the conduct of the party’.[70]
[69][2011] NSWCA 389.
[70]Ibid [293] (Bathurst CJ and Campbell JA agreed with Allsop P).

Tenth, it is a noticeable feature of all the cases, thus far, in which conduct has been held to be ‘unconscionable’ that the conduct has been found to be unethical in some manner or other.[71] For example, in Australian Competition and Consumer Commission v Lux Distributors Pty Ltd,[72] a case which involved door to door sales of vacuum cleaners, the Court found that a defendant had practised a ‘deceptive ruse’ to take advantage of an 89 year-old woman living alone.[73] The ruse involved salesmen cold calling and offering a free maintenance check on existing cleaners.
[71]Cf Violet Home Loans Pty Ltd v Schmidt [2013] VSCA 56, [59] where the Court (Warren CJ, Cavanough and Ferguson AJA) said:
In our view, little is to be gained by a close factual analysis of the myriad of cases that have considered whether particular conduct was unconscionable. Whilst there are sometimes factual similarities between the cases, inevitably there are differences. Similarly, we do not find it of assistance to consider whether conduct is unconscionable simply because of the type of lending that is involved, for example, asset based lending. Rather, the task requires a more synthesised approach which takes into account all of the facts relevant to the impugned conduct and determines whether, in all the circumstances, that particular conduct is unconscionable. However, in effect, VHL contended that the facts in the present case are on all fours with Tonto. We do not accept that submission. Mr O’Donnell had run a small business and the O’Donnells had borrowed money on security of their home to purchase that business.
[72][2013] FCAFC 90.
[73]Ibid [42] (Allsop CJ, Jacobson and Gordon JJ).

In Australian Securities and Investments Commission v National Exchange Pty Ltd,[74] the respondent had written to the shareholders of a listed company offering to buy shares at a price of $0.35 per share. The offer price was at a considerable undervalue and the Court found that the targeted offerees ‘could reasonably be expected to include persons who are unacquainted with share values, inexperienced in trading their interests, lacking in commercial experience and some of whom act inadvertently and are elderly’.[75] The Court found that the defendant had:

… set out to systematically implement a strategy to take advantage of the fact that amongst the official members there would be a group of inexperienced persons who would act irrationally from a purely commercial viewpoint and would accept the offer … This is not a case of shrewd commercial negotiation between businesses within acceptable boundaries. The conduct can properly be described as predatory and against good conscience. This is not a case of obtaining a low price by shrewd negotiation. It is predatory conduct designed to take advantage of inexperienced offerees.[76]

[74](2005) 148 FCR 132.

[75]Ibid 140-141 [33] (Tamberlin, Finn and Conti JJ).

[76]Ibid 142 [43].

In Violet Home Loans Pty Ltd v Schmidt,[77] this Court dismissed an appeal by a mortgage originator from a judgment that it had acted unconscionably in breach of s 12CB of the Australian Securities and Investments Act 2001 (Cth).[78] In that case, a 65 year-old man was persuaded by a fraudster to invest in a property scheme. The fraudster proceeded to arrange a loan for the man to secure the necessary funds. The necessary paperwork was prepared and shown to Violet Homes which was a mortgage originator. It included several false and patently anomalous statements which bore on the ability of the man to repay the loan. The anomalies were noticed by the relevant officer of Violet Homes. No effort was made to interview the man despite a guideline (imposed by an agent of the lender) that all applicants be personally interviewed. The Court said:

As indicated above, the judge concluded that Violet’s actions in processing the loan in the knowledge of the various factors to which his Honour had referred were deliberate and were attended by moral fault and lack of moral responsibility. Violet had turned a ‘blind eye’ to the irregularities in the loan application and the income declaration and had ensured that the supplementary information was massaged.[79] Given that wilful blindness may constitute recklessness and may thus supply the necessary element of moral fault in cases of this kind, we see no error in his Honour’s approach. VHL contended that the calculation which it carried out as to loan serviceability satisfied the lender’s requirements. It argued that this calculation was unaffected by the level of Mr Schmidt’s income such that it was not a matter to which Violet ought be expected to give attention. It submitted that what has to be guarded against is inflated income figures, not a reduction in income. However, that is not an answer in this case where the information ought to have suggested that further investigation was required even though any of the three figures given for income would have satisfied the PUMA guidelines.[80]

[77][2013] VSCA 56.

[78] Section 12CB corresponded with s 8 of the Fair Trading Act 1999. It provided at the relevant time (so far as pertinent):

[79]Perpetual Trustees Aust Ltd v Schmidt & Anor [2010] VSC 67, [212] (J. Forrest J).

[80]Violet Home Loans Pty Ltd v Schmidt [2013] VSCA 56, [62] (Warren CJ, Cavanough and Ferguson AJA).

As indicated above,[81] the trial judge upheld a particular claim of statutory unconscionability against Hansen in respect of the Future Owner Program, and claims against Scully in respect of the Key Home Buyer Program. In doing so, the trial judge found that there had been an intention to exploit persons in a vulnerable position and conduct which was, in all the circumstances ‘irreconcilable with what is right or reasonable … immoral conduct, which deserves the opprobrium of a finding of unconscionability’.[82]
[81]At [9].
[82]Reasons [280].

In the former case, the trial judge found that, although Hansen was being paid a weekly salary without commission, his employment depended upon the continued existence of Active. Hansen persuaded a Mr and Mrs Butcher to participate in the program and undertake the obligations that it imposed in circumstances in which (a) he knew (and had been warned by their real estate agent that) Mr Butcher could not understand what would be his obligations under the program, (b) he knew that the Butchers could not afford to participate in the program, (c) he knew that a property settlement which the Butchers had said would provide necessary funds had not been concluded, and (d) he had deliberately manipulated a budget planner spreadsheet to disguise the fact that the Butchers could not afford both the program commitments for the home as well as their living expenses. The trial judge held that Hansen had acted unconscionably by allowing the Butchers to participate in the Future Owner Program. The trial judge inferred that Hansen’s intention ‘was to exploit their vulnerable position, so as to obtain fees of about $19,000 for Active’.[83]
[83]Reasons [257].

The trial judge rejected a particular claim against Gilfillan in respect of the Butchers. Applying the decision in Tonto Home Loans Australia Pty Ltd v Tavares,[84] the trial judge said:

Mr Gilfillan did not authorise Mr Hansen to act towards the Butchers in the way he did, was not involved in the decision to allow the Butchers to participate in the program, and did not know of the circumstances leading to their participation. A case of wilful blindness cannot be sustained against him.[85]

[84][2011] NSWCA 389, [293] (Bathurst CJ, Allsop P and Campbell JA).

[85]Reasons [261].

The trial judge also upheld both general and particular claims of statutory unconscionability against Scully in respect of the Key Home Buyer Program.[86] This program involved investors buying the houses that had been identified by the participants who would then lease the houses at an above market rental and, at the end of a five year period, would exercise an option to acquire the house. But, the arrangements underlying this program were far from straightforward. The investors in fact leased the houses to Key Result which, then, subleased them to the participants in the program. Key Result had an option to purchase the house from the investor, and, in their turn, the participants had an option to purchase the house from Key Result. But the ‘back-to-back arrangements’ were misdescribed to participants: their sublease was described as a ‘lease’. Further, the arrangements were hazardous to the participants, and not adequately explained to them. Despite complying with their rental obligations under the sublease, the participants stood to have their option to purchase rendered nugatory if Key Result did not perform its obligations under the head lease. Further, the option arrangements between Key Result and the participants were ‘complex documents which are heavily weighted in favour of’ Key Result.[87] The trial judge rejected explanations that Scully had provided to the appellant for those terms and said:

None of Mr Scully’s reasons protected or benefitted the home buyers. In any event, there is no evidence that Mr Scully arranged for the back-to-back arrangements, or the complex option terms, to be explained to home buyers. Given the unusual and complex nature of these arrangements and terms, fairness required that Mr Scully establish and implement a system to provide potential home buyers with a full and fair explanation of the terms and possible ramifications of the back-to-back arrangements. Failure to arrange for such an explanation was irreconcilable with what is right or reasonable. I infer that Mr Scully made a considered decision to leave the back-to-back arrangements unexplained; so as to not to highlight the risks for home buyers, and the potential benefits for Key Result. That was immoral conduct, which deserves the opprobrium of a finding of unconscionability.[88]

[86]Scully, an undischarged bankrupt, did not defend the claims. He took no part in the appeal.

[87]Reasons [278].

[88]Reasons [280].

Eleventh, the intentional breach or reckless disregard of certain norms or standards amounts to statutory unconscionability. Those norms or standards must be more than those that happen to be personal to the court or tribunal charged with the responsibility of deciding whether conduct is unconscionable. Certainly, they will include norms of honesty and fair dealing and norms which exclude exploitation and deception. Some such norms and standards may be detected in the principles of public policy immanent in legislation such as the Competition and Consumer Act 2010 (Cth) and the Australian Consumer Law and Fair Trading Act 2012 (Vic). As the Federal Court said in Australian Competition and Consumer Commission v Lux Distributors Pty Ltd:[89]

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. The existence of State legislation directed to elements of fairness is a fact to be taken into account. It assists the Court in appreciating some aspects of the publicly recognised content of fairness, without in any way constricting it. Values, norms and community expectations can develop and change over time. Customary morality develops “silently and unconsciously from one age to another”, shaping law and legal values: Cardozo, The Nature of the Judicial Process (Newhaven, Yale University Press, 1921) pp 104-105. These laws of the States and the operative provisions of the ACL reinforce the recognised societal values and expectations that consumers will be dealt with honestly, fairly and without deception or unfair pressure. These considerations are central to the evaluation of the facts by reference to the operative norm of required conscionable conduct.[90]

[89][2013] FCAFC 90.
[90]Ibid [23] (Allsop CJ, Jacobson and Gordon JJ).

Ange v First East Auction Holdings Pty Ltd

In its submissions, the appellant referred to Ange v First East Auction Holdings Pty Ltd[91] and to the statement of Sifris AJA (with whose reasons Neave and Tate JJA agreed) that the trial judge in that case had ‘identified the correct test and applied it to the relevant facts of the case.’[92] The appellant points out that the test formulated by the trial judge made no reference to any need to establish ’a significant level of moral obloquy’. True, but the trial judge in that case commenced his analysis of statutory unconscionability with a reference to the statement of principle contained in Hurley v McDonald’s Australia Ltd,[93] in which the Court made it clear that a showing that conduct was ‘irreconcilable with what is right or reasonable’ had to import a ‘pejorative moral judgment’.As Sifris AJA said:

There has been no serious misconduct or unfair or unreasonable conduct on the part of Bonhams which would justify a finding that it had engaged in unconscionable conduct within the meaning of ss 51AB and 51AC of the TPA. The reasons provided by his Honour in paragraphs 209 to 215, and in particular the factual findings, were supported by the evidence and were clearly open to his Honour.[94]

As is plain, the factual findings in that case did not even demonstrate a case of serious misconduct on the part of the defendant.

[91][2011] VSCA 335.

[92]Ibid [104].

[93][2000] 22 ATPR 41-741.

[94]Ange v First East Auction Holdings Pty Ltd [2011] VSCA 335, [105].

Conclusion

In considering whether the conduct he had to evaluate was unconscionable the trial judge was required to reveal the way in which he understood that word. In his reasons he did so, and they are more subtle than the notice of appeal would suggest. It was not the case that he simply substituted the phrase ‘moral obloquy’ for the word ‘unconscionable’. Rather, we accept the submission of Gilfillan that the trial judge understood statutory unconscionability as involving moral taint and, that absent such taint, conduct which might be thought otherwise to be unfair or unreasonable should not be held to be ‘unconscionable’. The conduct of a defendant should be deserving of reproach, hence the aptness of the phrase ‘moral obloquy’.

The trial judge applied the existing tests for the determination whether conduct is unconscionable within s 8(1) of the Act. I am not convinced that those tests are plainly wrong.

The appeal should be dismissed with costs.

- - -

(1)A person must not, in trade or commerce, in connection with the supply or possible supply of financial services to a person, engage in conduct that is, in all the circumstances, unconscionable.

(2)Without limiting the matters to which the Court may have regard for the purpose of determining whether a person (the supplier) has contravened subsection (1) in connection with the supply or possible supply of services to a person (the consumer), the Court may have regard to:

(a)the relative strengths of the bargaining positions of the supplier and the consumer; and

(b)whether, as a result of conduct engaged in by the supplier, the consumer was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the supplier; and

(c)whether the consumer was able to understand any documents relating to the supply or possible supply of the services; and

(d)whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the consumer or a person acting on behalf of the consumer by the supplier or a person acting on behalf of the supplier in relation to the supply or possible supply of the services; and

(e)the amount for which, and the circumstances under which, the consumer could have acquired identical or equivalent services from a person other than the supplier.

…

(5)A reference in this section to financial services is a reference to financial services of a kind ordinarily acquired for personal, domestic or household use.

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Director of Consumer Affairs Victoria v Scully [2013] VSCA 292

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[2013] VSCA 292

18 October 2013 (Revised 21 October 2013)