On unconscionability and unfairness

As I mentioned in my previous post, the ACCC’s chairman, Rod Sims, recently gave an interesting interview to the Guardian in which he advocates for an unfair conduct provision to replace current prohibitions on unconscionable conduct in Commonwealth legislation.

Sims’s push comes as a result of Courts having interpreted unconscionable conduct narrowly, despite Parliament’s attempt to broaden the concept. The High Court’s decision in Australian Securities and Investments Commission v Kobelt [2019] HCA 18 highlighted this tendency, at least amongst the four Justices constituting the majority.

Sims’s comments also follow Justice Maxwell’s similar recommendation in a recent Victorian Law Foundation Oration.

Justice Maxwell’s speech is a very good overview of the concept of unconscionable conduct. As he notes, the prohibition against unconscionable conduct “is at the heart of Australian consumer protection law.”

Justice Maxwell goes on to say:

That we set so much store by a quintessentially moral concept like unconscionability raises…some unexplored questions about the role of the judge as moral arbiter, and moral reasoner, and about the tension between the moral aspirations of the law and the profit-driven dynamics of the market economy.

The following discussion about whether judges should exercise moral judgment and whether they have the capacity to do so (spoiler: Justice Maxwell concludes they should and they do) is also interesting.

As Justice Maxwell points out, the detriment of a prohibition on unconscionable conduct is that it is inherently uncertain. However, as Edelman J notes in his dissent in ASIC v Kobelt, parliament has repeatedly preferred the language of unconscionability because it is more certain than the alternatives (see ASIC v Kobelt at [288] and [290]).

Uncertainty in interpretation makes it difficult for businesses to determine the limits of appropriate conduct. However, speaking in relation to unconscionabiliity, Justice Maxwell said that theoretically:

[T]he risk of conduct being found to be unconscionable, and uncertainty about where the limits might be drawn if the matter went to Court, should encourage a precautionary approach.

The Hayne Royal Commission demonstrated that, in many cases, this aim has not been met. As a result, Justice Maxwell concludes:

Adoption of a fairness as a test might not be conducive to greater certainty. But it would certainly promote better understanding by all concerned - and, it might be hoped, higher standards of conduct - if we had a prohibition on conduct which was “in all the circumstances, unfair”.

I wonder if changing the test to whether conduct is unfair will produce such a change in behaviour.

The obligations superannuation trustees owe include, amongst others, an obligation to act in members’ best interests. Insurers owe to insured’s a duty of utmost good faith (in this case, the duty is a mutual obligation). Despite these higher standards, Commissioner Hayne found systemic failures in both areas.

It is not guaranteed that merely changing the language used to describe the standard of conduct expected will materially change its content. However, courts have described the test of unconscionable conduct as being distinct from notions of fairness and justice, as in the following quote from Bathurst CJ in Ipstar Australia Pty Ltd v APS Satellite Pty Ltd [2018] NSWCA 15; (2018) 356 ALR 44 at [195]:

In this context, it is important to bear in mind that the question of whether certain conduct is unconscionable does not involve an idiosyncratic determination of what is “fair” and “just” in a particular case. Rather, it involves a consideration of all the circumstances to conclude whether or not the conduct in question falls below acceptable norms, standards or values such as to warrant it being determined to be unconscionable.

As that comment indicates, determining what is unfair in a particular case will require a close examination of all of the circumstances surrounding the conduct. From a practical point of view, it will be just as difficult for commercial lawyers to advise clients about what conduct is acceptable and what is likely to lead to sanction. The only thing that will make that easier is the development of caselaw, from which it will be possible to gain analogies. However, as circumstances will never be identical, it will remain difficult to advise with any certainty.

Whatever the result, calls for the change from unconscionability to unfairness are increasing in volume and frequency. Any such change will cause a great deal of uncertainty about the standards of commercial conduct acceptable in Australia. It would also increase litigation in the area as commercial clients, regulators and consumers test the limits of the prohibition on unfair conduct. As a result, I expect that substantive change to commercial conduct will be slow as those cases make their way through the courts. While they do, there is the potential for both commercial conduct testing, and overstepping the margins and a significant amount of societally acceptable conduct stifled. At the same time, business will bear the costs of determining the limits of commercial fairness in a relative vacuum of precedent.

I do not know if that is a result we want.