Court of Appeal picks up where Kobelt left off to set the new test for unconscionable conduct

In the recent Victorian Court of Appeal decision of Jams 2 Pty Ltd v Stubbings [2020] VSC 200 the full bench of the COA has considered the High Court’s decision in Kobelt and gone one step further, finding consensus where the highest court in the land could not.

When considering allegations of unconscionable conduct involving a private lender who granted an assets-based loan to a borrower with no income (and therefore no prospect of servicing the loan in the medium to long term) Justices Beach, Kyrou and Hargrave have picked up the dicta of Gaegler J and applied it as the proper test to replace the much maligned ‘moral obloquy’ or ‘moral tainting’ test.

Importantly, this new decision is now the highest judicial consensus on statutory unconscionable conduct under s.12CB of the ASIC Act (and s.21 of the ACL) and the current test of how bad must the conduct be before it is bad enough to warrant sanctioning by a court as unconscionable conduct.

The full bench accepted the High Court's jettisoning of the moral obloquy test in ACCC v Kobelt [2019] HCA 18:

"we accept that the effect of Kobelt is that the previously accepted arcane terminology of ‘moral obloquy’ should no longer be used."


But went further and unanimously adopted Gageler J’s dicta in Kobelt, stating the new test to be applied by courts is as follows:


“The applicable standard is a normative one involving the evaluation of whether the conduct in question is ‘so far outside societal norms of acceptable commercial behaviour as to warrant condemnation as conduct that is offensive to conscience’; in the sense that a court should only take the serious step of denouncing conduct as unconscionable when it is satisfied that the conduct is ‘offensive to a conscience informed by a sense of what is right and proper according to values which can be recognised by the court to prevail within contemporary Australian society’"

This is certainly a step in the right direction by the COA and a test we hope to see all jurisdictions across Australia embrace.


By Rob Norton and Louise Gehrig