Unconscionable conduct is behaviour in a commercial dealing that is so far outside acceptable standards of honesty and fairness that the law will not allow it to stand. It is not simply a bad deal, or a customer who regrets signing. The rule targets the way a deal was struck: taking advantage of someone's vulnerability, applying pressure that goes beyond hard bargaining, or extracting terms so one-sided that enforcing them would shock the conscience.
The prohibition sits in the Australian Consumer Law (the ACL), which is Schedule 2 of the Competition and Consumer Act 2010 (Cth) (the Act). It applies automatically to nearly every supply or acquisition of goods and services in trade or commerce. There is no registration, no threshold dollar amount, and no opt-out: the rule is simply part of the law that governs how Australian businesses deal with their customers and their suppliers.
For a small or medium business the prohibition matters in two directions at once. You can be on the wrong side of it if your sales or collections practices exploit vulnerable customers, and you can be on the receiving end of it if a much larger supplier or buyer deals with you unconscionably. This guide walks through the machinery of the prohibition: the two legal tests, who is protected and who enforces the rules, the factors courts weigh, two real cases where the line was crossed, the penalties and remedies available, and where the risk concentrates.
The two prohibitions: equity and statute
There are two overlapping prohibitions, and understanding the difference makes sense of the case law.
Section 20 of the ACL prohibits unconscionable conduct within the meaning of the unwritten law, which is the equitable doctrine developed by the courts over more than a century. Its classic statement is Commercial Bank of Australia Ltd v Amadio [1983] HCA 14, where the High Court set aside a guarantee signed by elderly parents with limited English who had not understood the extent of the liability they were taking on. Under the equitable doctrine a court intervenes where one party has a special disability or disadvantage, the other party knows of it, and the stronger party takes advantage of the situation.
Section 21 of the ACL goes further. It provides that a person must not, in trade or commerce, in connection with the supply or possible supply of goods or services to a person, or the acquisition or possible acquisition of goods or services from a person, engage in conduct that is, in all the circumstances, unconscionable. Parliament made clear in subsection 21(4) that this statutory test is not limited by the equitable doctrine. It can catch a system of conduct or pattern of behaviour even where no particular individual is identified as disadvantaged, and a court considering a contract can look at its terms and the way it was carried out, not just the way it was negotiated.
Section 20 only applies where section 21 does not. In practice, modern cases are run under section 21, because it is broader and carries pecuniary penalties.
Who is protected and who enforces the rules
The protection is not limited to consumers. The prohibition applies to the supply of goods or services to a person and to the acquisition of goods or services from a person, so both sides of a dealing are covered. A small business is protected when it buys goods or services, and through the acquisition limb a supplier is protected against a powerful buyer acting unconscionably toward it.
The actors in the scheme are:
- The ACCC: the Australian Competition and Consumer Commission enforces the ACL at the Commonwealth level. It investigates, accepts court-enforceable undertakings, and takes proceedings seeking declarations, pecuniary penalties and injunctions.
- State and territory agencies: each state and territory fair trading agency enforces the mirror provisions of its own legislation for conduct within its jurisdiction.
- ASIC: for financial services, section 12CB of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act) mirrors section 21. Unconscionable conduct involving loans, insurance, credit or other financial products is policed by ASIC rather than the ACCC.
- Courts: the Federal Court and state supreme courts hear the proceedings and make the orders.
- The affected person: an individual or business that has suffered loss can bring its own claim for compensation and remedial orders, rather than waiting for a regulator to act.
How a court decides whether conduct is unconscionable
There is no bright-line checklist. Section 21 directs the court to consider all the circumstances, and section 22 of the ACL lists the matters the court may have regard to. In substance the court makes a holistic judgment about whether the conduct offends the standards of honest and fair dealing the community expects.
The factors include:
- Bargaining power: the relative strengths of the bargaining positions of the supplier and the customer.
- Unnecessary conditions: whether the customer was required to comply with conditions that were not reasonably necessary to protect the supplier's legitimate interests.
- Understanding: whether the customer was able to understand the documents relating to the supply.
- Pressure and unfair tactics: whether undue influence or pressure was exerted, or unfair tactics used, against the customer.
- Alternatives: the amount for which, and the circumstances under which, the customer could have acquired identical or equivalent goods or services elsewhere.
- Consistency: the extent to which the supplier's conduct matched its conduct in similar transactions with other like customers.
- Industry codes: the requirements of any applicable industry code.
- Non-disclosure: whether the supplier unreasonably failed to disclose intended conduct, or risks that it should have foreseen would not be apparent to the customer.
- Negotiation and terms: whether the supplier was willing to negotiate, the terms themselves, any unilateral right to vary them, and how both parties performed after signing.
- Good faith: the extent to which the supplier and the customer acted in good faith.
Where the conduct involves the acquisition of goods or services, subsection 22(2) mirrors these factors for the supplier side of the relationship. The Full Federal Court captured the underlying values in ACCC v Lux Distributors Pty Ltd [2013] FCAFC 90: the consumer protection laws "reinforce recognised societal values and expectations that consumers faced with direct salespersons will be dealt with honestly, fairly and without deception or unfair pressure".
The absence of a checklist cuts both ways. A single factor will rarely be decisive on its own, and conduct can be unconscionable even where every term was written down and signed. The focus is the whole picture: what the seller knew about the customer, what was disclosed, what pressure was applied, and how the outcome compares with what the customer could have obtained elsewhere.
Where the line gets crossed: two real cases
Door-to-door sales to elderly customers
The Lux case is the leading illustration of the prohibition at work. Lux Distributors sold vacuum cleaners through salesmen who called on homes uninvited, and the ACCC alleged unconscionable conduct in relation to elderly women sold machines in their own homes. The trial judge dismissed the claims; the Full Court allowed the ACCC's appeal and declared contraventions in relation to three consumers, Mrs Baird, Mrs Oxley and Mrs May, whose homes the salesmen entered as part of a sales pattern the court described as entry into consumers' homes by ruse.
The case also shows the evaluative nature of the test. Two courts looked at the same facts and reached different conclusions about where the line sat, which is exactly why the section 22 factors and the underlying values matter in practice.
A major buyer versus small suppliers
Unconscionable conduct is not only a consumer problem. In ACCC v Coles Supermarkets Australia Pty Ltd [2014] FCA 1405 the ACCC alleged that Coles' demands for payments from its suppliers, made in connection with their supply arrangements, were unconscionable given Coles' position and market power. Coles admitted the contraventions, and the court imposed penalties totalling $10 million, observing that the conduct was of a kind that merited severe penalty and would have warranted penalties at or close to the maximum but for the admissions.
The case demonstrates the acquisition limb of section 21 in operation: a powerful buyer can act unconscionably toward the businesses it buys from, not just toward consumers, and the ACL protects small suppliers in that situation.
Penalties and remedies if the line is crossed
The consequences of a contravention are substantial.
Pecuniary penalties under section 224 of the ACL are set per act or omission. For a body corporate the maximum is the greater of $100 million, three times the value of the benefit obtained from the conduct, or 30% of the body corporate's adjusted turnover during the breach period. For an individual the maximum is $2.5 million. In fixing a penalty the court must consider the nature and extent of the conduct, any loss or damage suffered, and whether the person has previously been found to have engaged in similar conduct.
Beyond penalties, section 243 of the ACL gives the court a broad remedial toolkit. It can:
- declare the whole or any part of a contract void, including void from the start;
- vary the contract;
- refuse to enforce any or all of its provisions;
- direct a refund of money or return of property;
- direct payment of the amount of the loss or damage suffered; and
- direct repairs or the supply of services.
Courts can also grant injunctions to stop the conduct continuing, which is relief the ACCC sought in the Lux proceeding, and regulators can accept court-enforceable undertakings as an alternative to litigating.
The traps that catch businesses
Several misconceptions cause real problems in practice:
- "It is all in writing, so we are safe": Subsection 21(4) expressly directs the court to consider the terms of the contract and the manner in which it was carried out, not just the circumstances of formation. A fully signed contract can still be set aside or varied.
- "Hard bargaining is fine": It is, up to a point. The law does not protect customers from tough negotiation, and a good deal for the seller is not unconscionable by itself. The line is crossed where conduct exploits vulnerability, or where pressure, non-disclosure and a disproportionate outcome combine.
- "It is only about what was said": The assessment covers the whole dealing: what was not disclosed, the terms themselves, the way the contract was performed, and whether the parties acted in good faith.
- "A cooling-off period fixes everything": Statutory cooling-off rights exist in specific situations, most notably for unsolicited door-to-door sales, but they do not cover most contracts. An unconscionable sale is not cured because a cooling-off window passed without the customer acting.
- "It is the same as misleading conduct or unfair contract terms": It is not. Misleading or deceptive conduct under section 18 of the ACL looks at whether statements or omissions were likely to mislead, regardless of intent. The unfair contract terms regime under section 23 targets unfair terms in standard form consumer and small business contracts, which can be voided even where the sale itself was unremarkable. The same facts can breach all three at once, but each needs its own assessment.
When to bring in a lawyer
For a business that sells goods or services, the practical value of legal input is usually in prevention. A lawyer can review sales scripts, retention tactics and standard terms against the section 22 factors, and help build processes that record what was disclosed, what time was offered, and what options were put to the customer. If a regulator starts an investigation, early advice on responding to a notice or a request for information can materially affect the outcome.
For a business or consumer that believes it has been treated unconscionably, a lawyer can assess the strength of the claim against the section 22 factors, advise whether the right path is a demand letter, a complaint to the ACCC or a state agency, or court proceedings, quantify the exposure including penalties, refunds and compensation, negotiate a settlement, and preserve and marshal the evidence.
Where the risk concentrates: how the deal was done
The most useful way to think about the prohibition is that the law scrutinises the process, not just the paperwork. A court will not infer bad faith from a one-sided outcome alone, but the combination of a vulnerable counterparty, pressure or non-disclosure, and a result that is grossly disproportionate is what has produced findings of contravention and penalties in the tens of millions. For a business, the cheapest protection is to be able to show, from records made at the time, that the customer was given time, information and options. For anyone on the receiving end, those same contemporaneous records are the evidence a claim will live or die on. If either description fits your situation, it is worth having the facts assessed early, before a complaint is made or a regulator becomes involved.