Extension of unconscionable conduct's reach: exploitation of vulnerability NOT required

Last Friday, the Full Court of the Federal Court upheld an appeal by the ACCC in Australian Competition and Consumer Commission v Quantum Housing Group Pty Ltd [2021] FCAFC 40, finding that Quantum Housing Group Pty Ltd (Quantum Housing) had engaged in unconscionable conduct in its dealings with investors under the National Rental Affordability Scheme (NRAS). This was a significant decision, as the Court found that unconscionable conduct is not only confined to exploitation of vulnerable parties.


Background

In June last year, the Federal Court found that Quantum Housing, and its director, falsely represented to investors that real estate agents must sign an agreement with Quantum Housing in order to manage their properties. Quantum Housing also represented that all property managers must meet certain accreditation guidelines, which it said were designed to protect investors against a loss of their incentive under the NRAS – subsidies for participants for renting properties to moderate and low income households for 20 percent or more below market rate – and protect Quantum Housing if it had to indemnify an investor for a loss. It made these representations in order to persuade investors to switch to a provider of management services it preferred, threatening investors with the loss of their incentive under the NRAS.


The Federal Court found that Quantum Housing had engaged in misleading and deceptive conduct, which ACCC Chairman Rod Sims described as “blatant, planned and deliberate in an effort to trick investors into switching from their preferred property managers”. However, notably, the Court did not find Quantum Housing’s conduct was unconscionable, because it said the investors were not “vulnerable or in a position of disadvantage of a kind that might expose them to being exploited or victimised”.


The ACCC in its appeal did not challenge the penalties imposed by the Federal Court, but appealed the failure of the primary judge to make a declaration as to unconscionable conduct.


Decision

In upholding the ACCC’s appeal, the Full Court said that

“predation on vulnerability, taking advantage of disability or disadvantage and victimisation … does not … exhaust the meaning of [unconscionable conduct]”.

The Court pointed to its requirement to apply the business standards made by Parliament, with ‘unconscionable’ being the language of business morality and assessments of unconscionable conduct being referable to the considerations expressed and recognised by the statute (e.g. the factors in section 22 of the Australian Consumer Law). The Court gave the following examples of conduct that could be classified as unconscionable with or without vulnerability or a position of disadvantage of the other side:

  • undermining a bargain;

  • commercial bullying or pressure and sharp practice;

  • using a superior bargaining position;

  • behaving contrary to an industry code

  • using significant market power in a way to extract an undisclosed benefit that will harm others who are commercially related to the counterparty.

The Court criticised narrow constructions of the word ‘unconscionable’ to the worst kind of conduct, finding that this would be contrary to the history, text and structure of the Australian Consumer Law. Instead, the Court said that the severity of the conduct would be reflected in the penalty imposed.


By Sam Williams and Louise Gehrig