Successful ACCC appeal “extends the reach” of statutory unconscionable conduct provisions for small businesses

A landmark decision by the Federal Court will provide further protection to small businesses that are treated unconscionably, according to Small Business Ombudsman Bruce Billson.

On Friday, March 19, the full bench of the Court upheld an appeal by the Australian Competition and Consumer Commission (ACCC) in a case against Quantum Housing Group Pty Ltd.

The ruling effectively means it is now possible to establish that a large business acted unconscionably without having to prove that the small business or consumer affected by the conduct was disadvantaged or vulnerable to exploitation. 

The ACCC first initiated proceedings against Quantum Housing in April 2019. In June 2020, the Federal Court found the now liquidated business made false and misleading representations in its dealings with investors regarding the National Rental Affordability Scheme. 

The ACCC also alleged the company engaged in systematic unconscionable conduct, but the Court ruled the company’s conduct was not unconscionable as it could not be shown that the investors were disadvantaged or vulnerable to exploitation. 

The ACCC appealed this decision in July 2020 and on Monday, 22 March, the full bench of the Court was found in the ACCC’s favour, ruling that special disadvantage is not necessary to establish unconscionable conduct under the Australian Consumer Law (ACL). 

The Court’s ruling means courts can now determine whether commercial conduct is “unconscionable” under the ACL by considering whether the conduct represented “a sufficient departure from the norms of acceptable commercial behaviour”, regardless of whether the affected small business or consumer had a particular disadvantage or vulnerability. 

Australian Small Business and Family Enterprise Ombudsman Bruce Billson said it was “a great day” for small businesses, who will now have further protection from unconscionable conduct. 

Billson added that the ruling “should reassure smaller businesses that remedies are available for the harm caused by unconscionable conduct of a counterparty … and that fair and reasonable commercial dealings support Australian commerce, even where a larger, more powerful corporation is involved”. 

“While the exploitation of a disadvantage or vulnerability is an important criteria for establishing if a business has acted ‘unconscionably’, egregious conduct that causes harm to another business cannot be acceptable purely by the absence of this specific form of exploitation,” he added. 

ACCC chair Rod Sims said in a statement the decision will be “extremely important” for all Australian businesses and consumers. 

The Court’s decision “extends the reach of the statutory unconscionable conduct prohibition so that it will protect more consumers and small businesses against egregious conduct by corporations,” he added. 

“The Full Court has confirmed that the correct approach to assessing statutory unconscionability is to focus on the conduct, and access whether it is a sufficient departure from the norms of acceptable commercial behaviour as to be against conscience or to offend conscience.”

In its June 2020 ruling, the Court issued penalties of $700,000 to Quantum and $50,000 to the company’s sole director Cheryl Howe for being knowingly concerned in the company’s conduct. Howe was also banned from managing a corporation for three years. 

In its appeal, the ACCC did not appeal the penalty amounts and both Quantum and Howe did not participate in the appeal. In their place, a contradictor was appointed to help the Court by arguing against the ACCC’s position.