LAWS6991 Chap.11 Statutory Unconscionability and Unfair Terms
Statutory Unconscionability and Unfair Terms
This chapter covers the statutory restraints in the Australian Consumer Law. Section 20 prohibits unconscionable conduct within the unwritten law in trade or commerce, and section 21 reaches conduct that is unconscionable in all the circumstances in supplying or acquiring goods or services, including systems of conduct. Section 22 lists matters a court may consider.
Productivity Partners treats those matters as aids to an evaluative judgment, while Kobelt shows how divided that judgment can be. Sections 23 and 24 make unfair terms in standard form consumer and small business contracts void.
What this chapter covers
- 01
Scope of the ACL
- 02
Section 20 and the unwritten law
- 03
Section 21 and systems of conduct
- 04
Section 22 matters
- 05
Productivity Partners v ACCC
- 06
ASIC v Kobelt
- 07
Consumer and small business contracts
- 08
Section 24 test of unfairness
Worked example · free
Is the business a small business?
- 1Section 23(4) treats a contract as a small business contract where at least one party employs fewer than 100 persons or has turnover below $10,000,000.
- 1The company's turnover of $12,500,000 exceeds $10,000,000, but its 85 employees are fewer than 100, so the employee limb is satisfied.
- 1The contract is in standard form, so section 23 applies if the term is unfair under section 24.
- 1A one-sided price variation power is a strong candidate for significant imbalance, may not be reasonably necessary to protect the supplier, and would cause detriment; if so, the term is void and the rest of the contract continues.
Key terms
- Trade or commerce
- Business or professional activity, profit-making or not, as the ACL defines the phrase.
- Unwritten law
- Judge-made law, including the equitable doctrine of unconscionable dealing, referred to in section 20.
- System of conduct
- A pattern of behaviour that section 21 can treat as unconscionable without identifying a particular victim.
- Standard form contract
- A contract prepared by one party and offered on largely non-negotiable terms.
- Significant imbalance
- The first limb of unfairness, where a term tilts the parties' rights and obligations markedly towards one side.
- Small business contract
- A contract where a party employs fewer than 100 people or has turnover below the statutory threshold.
Statutory Unconscionability and Unfair Terms FAQ
When does the ACL unconscionability regime apply?
Only to conduct in trade or commerce. Purely private transactions, including those between family members, must be dealt with in equity, and section 131 leaves financial services and products to the ASIC Act.
What is the difference between sections 20 and 21?
Section 20 picks up unconscionable conduct as understood in the unwritten law, while section 21 applies a broader statutory standard to the supply or acquisition of goods or services and can reach a system or pattern of conduct.
Are the section 22 factors a checklist?
No. Productivity Partners held that treating them as mandatory factors applied mechanistically would be contrary to the text; they inform an evaluative judgment about all the circumstances, measured against community standards of conscience.
Why did ASIC lose in Kobelt?
The majority found the book-up system was open to abuse but not abused, and stressed the customers' choice to continue. The dissenting judges thought willingness could not cure an exploitative arrangement for highly vulnerable customers.
What makes a contract term unfair?
Under section 24, the term must markedly tilt the parties' rights, go beyond what is reasonably needed to protect the favoured party's interests, and cause detriment if relied on. The court must consider transparency and the contract as a whole.
What happens to an unfair term?
Section 23 makes it void if the contract is a standard form consumer or small business contract. The rest of the contract continues to bind if it can operate without the term.
Exam move
Revise this chapter as two gateways and two tests. The gateways are trade or commerce for unconscionability and contract type plus standard form for unfair terms; check them first. The tests are the section 21 evaluative judgment with the section 22 matters, and the three limbs of section 24. Learn Productivity Partners for how to use section 22 and Kobelt for how judges disagree.
Practise small business threshold questions with numbers. Ask Sia to set statutory scenarios and check that you tested every gateway before the substance.
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