13 statutory unconscionability © oxford university press, 2007. all rights reserved

13

Statutory Unconscionability

© Oxford University Press, 2007. All rights reserved.

Statutory Unconscionability

Statutory Unconscionability cont...

Overview of the three TPA statutory provisions

governing unconscionability:

(i) s 51AB - 1986: consumer-type transactions

(ii) s 51AA - 1992: certain commercial transactions

(iii) s 51AC - 1998: small business transactions.

Statutory Unconscionability cont...Section 51AB:• quite broad - catches conduct in, or in connection with,

contracts of sale and conduct during negotiations

• does not give court complete power to rewrite contracts. Subject to specific limitations or threshold requirements:

(i) targets conduct of corporations (note extended reach)

(ii) in trade or commerce

(iii) in connection with purchases by consumers.

Statutory Unconscionability cont...Definition of “consumer”:

• s 51AB (5): goods or services must be “of a kind ordinarily acquired for personal, domestic or household use or consumption”

• s 51AB (6) excludes goods bought for the purpose of resale, supply or manufacturing purposes etc

• thus basic purpose of ss (5) & (6) is to limit s 51AB to consumer and consumer-type dealings.

Statutory Unconscionability cont...

Parameters of s 51AB - • contracts caught under s 51AB (unconscionability) fewer than

those covered by s 4B (implied terms)• reason – s 51AB has no threshold limit of $40,000• thus:

(i) under s 4B, if contract price under $40,000, then TPA usually applicable – whether the goods are for consumer or commercial use(ii) under s 51AB, no such threshold limit. Thus overriding requirement that goods or services must be of a kind ordinarily acquired for personal, domestic or household consumption. All goods of a commercial nature excluded.

Statutory Unconscionability cont...

What is unconscionable conduct under s 51AB?

• s 51AB(2) provides guidelines – not exhaustive• s 51AB(2) comprises both procedural and

substantive unconscionability factors • compare Amadio/equitable doctrine - only

concerned with procedural factors.

Statutory Unconsionability cont...Procedural unconsionability:

• terms hidden away in the document, incomprehensible language

• inequality between parties due to factors like age or illiteracy

• oppression, deception or other sharp practice: conduct of the stronger party

• s 51AB(2)(a)(c) & (d) deal with procedural unconscionability.

Statutory Unconscionability cont...Substantive unconscionability:

• are the terms, in the way they operate in practice, unduly one-sided from perspective of weaker party?

• overall imbalance in the terms• harsh or unreasonable terms• examples: certain exclusion clauses or accelerated

payment clauses• s 51AB(2)(b) & (e) provide examples of substantive

unconscionability.

Statutory Unconscionability cont...

Remedies for breach of s 51 AB:• s 80 injunctions• s 82 damages• s 87 orders

• s 87 provides very flexible range of remedies; court has broad discretion in terms of remedy.

Statutory Unconscionability cont...

Remedies for breach of s 51AB (cont):

• court can ‘re-write’ contract by varying it in whole or in part

• court can refuse to enforce any or all of the terms of the contract

• note that under s 87, bars to rescission do not automatically apply.

Statutory Unconscionability cont...

Response to s 51AB -

• note debate - some said s 51AB was too narrow and should be extended to include commercial transactions (now see s 51AC, operative 1 July 1998)

• others argued s 51AB still placed too much emphasis on procedural unfairness rather than the substantive content of the contract.

Statutory Unconscionability cont... Response to s 51 AB (cont):

• some critics argued that the criteria did not provide court with sufficient guidance as to whether conduct was unconscionable

ie. the court has too much discretion to re-write contracts and as a result, the provision undermines concepts of freedom and sanctity of contract.

Consider whether the same argument may be made in relation to s 51AC.

Statutory Unconscionability cont... Debate about extension of unconscionability to

commercial transactions (now see s 51AC):

• concerns about commercial certainty• Amadio normally inadequate: focus on special disability and

procedural unconscionability; unfair terms not sufficient to activate equitable doctrine

• Zumbo: very balanced US approach to s2/302 Uniform Commercial Code (statutory unconscionability in commercial transactions, similar to s 51 AC).

Statutory Unconscionability cont...

Section 51 AA: introduced in 1992

• codifies equitable doctrines; confers no new rights• covers conduct that is unconscionable within the

meaning of the unwritten law from time to time of the states and territories

ie. commercial transactions within Amadio or Garcia • allows access to more flexible remedies under s 87 • also confers procedural advantages (eg. access to Federal Court).

Statutory Unconscionability cont...

Threshold requirements of s 51AA:

• targets conduct by corporations

(compare state equivalents - “persons” - and equity - where the stronger party does not have to be a bank or a credit union etc)

• in trade or commerce (commercial aspect)• conduct must be unconscionable within Amadio or

Garcia etc.

Statutory Unconscionability cont...

Outcome of debate: s 51 AC

• commenced operation 1 July 1998• mirrors rights available to consumers under s 51AB• objective to assist ‘small business’- s 51AC is limited

to transactions which do not exceed $3m• also limited to unconscionable conduct in relation to

the supply or acquisition of goods or services for the purposes of trade or commerce.

Statutory Unconscionability cont...

Section 51 AC:

• s 51AC(3) & (4): checklist of factors to help court determine whether conduct is unconscionable

• ss 51AC(3) &(4) (a)-(e) almost identical to checklist in ss 51AB(2)(a)-(e)

• extra tests of unconscionability relevant to small business have been added – eg. compliance with industry codes of conduct, acting in good faith

• see ACCC v Simply No-Knead (Franchising) P/L.

Statutory Unconscionability cont...

Remedies for breach of s 51AC:• s 80 injunctions• s 82 damages• s 87 orders.

Note guidance provided by ACCC: Small Business Guide.