Unconscionable conduct is the subject of provisions in the ACL.

There are three different types of unconscionable conduct under the ACL:

  • unconscionable conduct under the ‘unwritten law’ (s20);
  • unconscionable conduct affecting consumers (s21); and
  • unconscionable conduct affecting small business (s22).

Unconscionable conduct under the unwritten law

Section 20 of the ACL states that a person (which includes 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. The purpose of this section is principally to widen the range of remedies available to the victim of unconscionable dealing. It also enables the ACCC to investigate unconscionable conduct and, if necessary, bring legal action on behalf of the person who has been treated unconscionably.

Section 20 appears to refer to the doctrine of unconscionable dealing as it has been interpreted in case law. However, the words are perfectly general and the courts have not yet settled on what constitutes unconscionable conduct under ‘the unwritten law’ and it may go beyond the doctrine of unconscionable dealing to include other equitable doctrines (for example, equitable estoppel).

Unconscionable conduct affecting consumers

The ACL section 21 provides that a person (which includes a corporation) must 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.

This provision protects ‘persons’ but the general definition of ‘consumer’ in section 3 in connection with consumer guarantees does not apply. Instead the protection provided by section 21 is only available in respect of goods or services ‘of a kind ordinarily acquired for personal, domestic or household use or consumption’ (s21(5)). The significance of this is that the $40,000 limit does not apply. The effect of that limit was that business purchases under $40,000 were deemed to be consumer purchases. Under section 21 there is no monetary limit but the goods or services must be of a kind ordinarily acquired for personal, domestic or household use or consumption. This would cover some business purchases (for example a microwave for the staff kitchen). Other business purchases or sales are covered by section 22.

Considerations to be taken into account

Section 21(2) of the ACL provides some guidance as to what amounts to unconscionable conduct. In other words, the meaning of unconscionable conduct is not left to the general law (as in s20 . The subsection lists a number of considerations to which the court may have regard. In brief, they are:

a) the respective bargaining strengths of the parties;
b) whether the consumer was required to comply with conditions not reasonably necessary for the protection of the other party;
c) whether the consumer understood documents relating to the transaction;
d) whether any undue influence or unfair tactics were used against the consumer; and
e) the price and circumstances under which the consumer could have acquired the goods or services from a third party.

These factors are only a guide and the list is not exhaustive. Conduct may be considered to be unconscionable where there has been serious misconduct or unfairness.

Unconscionability requires that the party alleged to have acted unconscionably was aware of the other party's vulnerability and then took advantage of that vulnerability by proceeding with a transaction. How does this apply to a corporation whose various employees may be dealing with a customer? In ACCC v Radio Rentals Ltd (2005) it was held that it is not possible to aggregate the dealings of various employees of a corporation which together could be seen as exploitative but where each employee was unaware of the disability of the customer and had no reason to know of it. In other words, it is not possible to build a case of unconscionable conduct against a corporation by notionally aggregating the states of mind of its various employees.

As with misleading or deceptive conduct, the prohibition applies to any conduct, not just conduct at the time of entering into a contract.

A clause in a contract can also be declared unconscionable, even if there was no unconscionable conduct in the way the contract was signed. For example the Victorian Supreme Court has held that a clause in the fine print of a contract that created an onerous obligation was unconscionable.

However, the majority of the case law to date has dealt with procedural unfairness, that is, in relation to matters leading up to the formation of a contract, rather than with the substantive unfairness of a contract itself.

Unconscionable conduct affecting small business

ACL section 22 prohibits misleading conduct affecting small business. This is not, however, apparent from the section itself which makes no mention of small business. Section 22 provides:

(1) A person must not, in trade or commerce, in connection with:
(a) the supply or possible supply of goods or services to another person (other than a listed public company); or
(b) the acquisition or possible acquisition of goods or services from another person (other than a listed public company);
engage in conduct that is, in all the circumstances, unconscionable.


At the time when this section (formerly s 51AC of the TPA) was introduced into parliament, it was said that it was designed to protect small business, such as franchisees or small shopkeepers in large shopping malls when dealing with big business. This is done somewhat crudely by limiting the ‘victims’ of unconscionable conduct: they must not be listed public companies. Other than that, there is no guidance as to its intended application to small business transactions.

Subsections 22(2) and (3)  like section 21(2)  include a list of factors that may amount to unconscionable conduct where the small business is either a consumer or a supplier of goods or services. The list is somewhat more extensive than that in section 21. In addition to the factors listed above in connection with sections 21 and 22 includes:

  • the extent to which the supplier's conduct towards the business consumer was consistent with the supplier's conduct in similar transactions between the supplier and other like business consumers;
  • the requirements of any applicable industry code (for example, the code applying to franchise contracts);
  • the extent to which the supplier unreasonably failed to disclose to the business consumer:
  • any intended conduct of the supplier that might affect the interests of the business consumer; and
  • any risks to the business consumer arising from the supplier's intended conduct (being risks that the supplier should have foreseen would not be apparent to the business consumer);
  • the extent to which the supplier was willing to negotiate the terms and conditions of any contract for supply of the goods or services with the business consumer;
  • whether the supplier has a contractual right to vary unilaterally a term or condition of a contract between the supplier and the business consumer for the supply of the goods or services; and
  • the extent to which the supplier and the business consumer acted in good faith.

As with section 21, these factors are merely guides and are not definitive of what amounts to unconscionable conduct.

Time limit

An action based on unconscionable conduct must be brought within 6 years of the accrual of the cause of action (ss 236(2) and 237(3)).

Unfair Contract Terms

The ACL includes a new unfair contract terms part (Part 2-3) under which the terms of standard form contracts can be challenged as unfair. A successful challenge results in the term being declared void. In addition, if a court declares a term or terms to be unfair under section 250 additional remedies are available for a consumer who has suffered loss as a result of the declared term being used.

It will be seen below that the path to making a successful challenge to a contract term involves multiple concepts. If one of these is not established, then the challenge will fail. It will accordingly be very difficult for an individual to mount a successful case, particularly as the other side will probably be a well-advised corporation. This part of the ACL is not consumer friendly and would usually require the assistance of lawyers.

Standard form consumer contracts

Part 2-3 applies to consumer contracts which are standard form contracts (s23(1)), A consumer contract is a contract:

  • where the consumer is an individual; and
  • goods, services or an interest in land are acquired wholly or predominantly for personal, domestic or household use or consumption.

A contract is presumed to be a standard form contract unless the supplier adduces evidence to the contrary (s27(1)). If a court has to decide whether a contract is a standard form contract, it must consider (s27(2)):

  • whether one of the parties has all or most of the bargaining power relating to the transaction;
  • whether the contract was prepared by one party before any discussion relating to the transaction occurred between the parties;
  • whether another party was, in effect, required either to accept or reject the terms of the contract in the form in which they were presented;
  • whether another party was given an effective opportunity to negotiate the terms of the contract;
  • whether the terms of the contract (other than the terms referred to in section 26(1) take into account the specific characteristics of another party or the particular transaction.

Meaning of ‘unfair’

A term of a standard form consumer contract is unfair (s24(1)) if:

  • it would cause a significant imbalance in the parties’ rights and obligations arising under the contract; and
  • it is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and
  • it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.

It is presumed that a term is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term unless that party proves otherwise (s24(4)).

In deciding whether a term is unfair a court may consider any matters that are relevant but must take into account (s24(2)):

  • the extent to which the term is transparent; and
  • the contract as a whole.
  • The test of whether a term is transparent (s24(3)) is whether the term is:
  • expressed in reasonably plain language; and
  • legible; and
  • presented clearly; and
  • readily available to any party affected by the term.

In addition to these criteria there is a ‘grey list’ that is similar in purpose to the lists of what could constitute unconscionable conduct under sections 21 and 22  that is, the examples are guides but not definitive of what would be held to be unfair.


If a court decides that a term is unfair the term is void (s23(1)). So far as possible the rest of the contract should continue to operate (s23(2)).

Voidness is the only result of a successful challenge to a term of a standard form contract. There is no right to damages or other remedies following a challenge.

It is possible for a court to make a declaration that a particular term of a standard from agreement is unfair under section 250. Presumably this would usually only be done at the behest of a regulatory body such as the ACCC. Once a section 250 declaration has been made, further remedies are available. On application by a person who has suffered loss or damage or on the application of the regulator, a court can grant an injunction (s232(3)) or make such orders as the court thinks fit (s237(1)) and can, on application by the regulator, also make orders in favour of non-party consumers who have been affected by the declared unfair term (s239).

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