Express law No. 295

Background

The appellant (and applicant in the first instance proceedings), the ACCC, commenced proceedings against the first respondent, Quantum Housing Group Pty Ltd (Quantum) and the second respondent, Cheryl Howe (Ms Howe) who was the sole director and secretary of Quantum, for contraventions of ss 18, 29(1)(l) and 29(1)(m) of the Australian Consumer Law (ACL), concerning false or misleading representations made by Quantum, and unconscionable conduct in contravention of s 21 of the ACL. Ms Howe was alleged to have been knowingly concerned in Quantum’s contraventions.

The ACCC, Quantum and Ms Howe entered into a statement of agreed facts by which Quantum and Ms Howe admitted liability for all the contraventions alleged by the ACCC and agreed on relief, including the amount of penalties to submit to the Court.

The trial judge found that Quantum had engaged in false or misleading conduct pursuant to ss 18, 29(1)(l) and 29(1)(m) of the ACL and that Ms Howe was knowingly concerned in those contraventions and imposed penalties of $700,000 on Quantum and $50,000 on Ms Howe, a disqualification order against Ms Howe, publication orders and costs.

The trial judge did not find that Quantum had engaged in unconscionable conduct, but he did not reduce the amount of the agreed penalties to reflect this. This was on the basis that the trial judge considered that the High Court’s decision in ASIC v Kobelt (2019) 267 CLR 1; [2019] HCA 18 (Kobelt) meant that statutory unconscionability was intended to protect the vulnerable and the impugned conduct ‘had to involve taking advantage of that vulnerability in a manner that might be characterised as predatory or exploitative’. As the relevant conduct by Quantum did not involve taking advantage of any identified vulnerable persons then the conduct could not be unconscionable.

Federal Courts Reasoning

By the time of the appeal, Quantum was in liquidation and Ms Howe filed a submitting notice. The Full Court requested the appointment of a contradictor on the appeal.

At the appeal hearing, the ACCC’s primary argument was that the trial judge had erroneously found that the Kobelt decision meant that the special disadvantage, as described in equity, was required to be proved in cases of statutory unconscionability. An additional argument was that the trial judge had erroneously found that some form of exploitation or predation upon some vulnerability or disadvantage is required before statutory unconscionability can be found. Once these errors were corrected, the ACCC submitted that the facts as admitted gave rise to a contravention of s 21 of the ACL.

The Full Court (Allsop CJ, Besanko and McKerracher JJ) in a unanimous decision found that:

• the trial judge had not required ‘special disadvantage’ in the equitable sense to be shown before statutory unconscionability could be made out ([3] and [31])
• Kobelt was not intended to be a general statement of principle in all cases ([43] – [50])
• some form of exploitation of or predation upon some vulnerability or disadvantage of a person or class or persons will often be a feature of conduct which satisfies the characterisation of unconscionable conduct under s 21 of the ACL, but such vulnerability or disadvantage is not a necessary feature of statutory unconscionability and nothing in the decision of Kobelt required this ([4], [62], [73], [78]-[79] and [84]-[85])
• the language used by Gageler J in Kobelt through the terms ‘so far outside’, ‘warrant condemnation’ and ‘offensive to the conscience’ should be seen as indicative of the quality of the departure from right commercial behaviour required, rather than be taken as definitional of some measurable departure from conscionable business conduct ([92]).

Implications

This case is the first appellate authority to consider the decision in Kobelt and its broader application. This case confirms that existing intermediate appellate authorities such as ASIC v National Exchange (2005) 148 FCR 132, Paciocco v Australia and New Zealand Banking Group Ltd (2015) 236 FCR 199; Unique Internatonal College Pty Ltd v ACCC (2018) 266 FCR 631 and ACCC v Lux Distributors Pty Ltd (2013) ATPR 42-447 are still good law.

Additionally, the Full Court made observations about the proper form of declarations and now appears to favour a longer form type of declaration for unconscionable conduct matters which sets out all the individual factors and their interrelatedness ([97]) but shorter form declarations may be appropriate in specific cases.

Text of the decision is available at:
Federal Court of Australia, Australian Competition and Consumer Commission v Quantum Housing Group Pty Ltd [2021] FCAFC 40.