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CONTENTS
Trade Practices Amendment (Fair Trading) Bill
1997
Date Introduced: 30 September 1997
House: House of Representatives
Portfolio: Industry, Science and Technology
Commencement: On the day on which the Act receives
the Royal Assent. For Schedule 2, commencement is on 1 July 1998,
or a later date if fixed by Proclamation, otherwise, six months
after the Act receives the Royal Assent (if Royal Assent given
after 1 January 1998).
The purpose of the Bill is to amend the Trade Practices Act
1974 to prohibit unconscionable conduct in relation to certain
small business versus big business transactions, and to allow
industry codes of practice to be prescribed and, where necessary,
enforced as mandatory industry codes.
In 1992, a new Part IVA Unconscionable Conduct was
added to the Trade Practices Act 1974.The new Part IVA
extended the previous section 52A, which dealt with unconscionable
conduct in the context of consumer protection.Section 52A, in an
expanded form, was relocated to Part IVA and two new sections were
created.A new section 51AA covered trade and commerce and it was
expressly limited to commercial or business to business
transactions.A new section 51AB for ordinary consumers was also
included.In fact, section 51AB was simply a restatement of the
'old' section 52A.
The difficulty for small business in applying section 51AA has
been noted by the Australian Competition and Consumer Commission
(ACCC) in its publication Small Business and the Trade
Practices Act.(1) The ACCC booklet includes the following
comment on unconscionable conduct and small business:
In practice this is often very difficult to prove
[unconscionability] because the law has accepted that commercial
transactions can sometimes be unfair or hard on one party.If you
enter into a contract or arrangement with your eyes open and it
later proves to be a hard bargain, the courts are unlikely to
interfere with such a transaction.
To prove 'unconscionability' which amounts to a breach of trade
practices law the weaker party must establish that it was in a
position of special disability which the stronger party
knew about (or should have known about) and that the
stronger party took unfair advantage of the position.If
one of these elements is missing then unconscionable conduct cannot
be proved even if one business is going to suffer a big
loss.(2)
The conventional criteria(3) for establishing unconscionable
conduct include:
- ignorance of material facts known to the other party
- illiteracy or lack of education
- poverty or need of any kind
- age
- infirmity of body or mind
- drunkenness
- lack of assistance or explanation where these are
necessary
- emotional dependence (e.g. a spouse who is pressured to sign a
guarantee for a partner's business loan).
A mere disparity in bargaining power between the parties is not
considered to constitute a 'special disability'.
On the 29 November 1995, towards the end of its term, the former
Labor Government introduced the Trade Practices Amendment (Better
Business Conduct) Bill 1995 into the Senate.The Bill proposed a new
Part IVB Harsh or Oppressive Conduct which, via a proposed
new section 51AC, included a protection for small business based on
the concept that the commercial conduct complained of was harsh or
oppressive.A set of criteria was included to assist the Court
determine whether conduct complained of was 'harsh or
oppressive'.
This Bill arose from the deliberations of a Small Business Forum
Working Party which had been established by, and reported to, the
then Minister for Small Business (Hon Senator Chris Schacht).The
Working Party had been established in December 1994 and reported in
February and May 1995.In its May 1995 Report(4), the Working Party
expressed reservations about the constitutional validity of the
existing section 51AA in the Trade Practices Act 1974.The
legal advice obtained by the Working Party concluded that there is
a strong argument that section 51AA is invalid because it purports
to confer legislative power on the courts.It was a similar
legislative approach in a Commonwealth statute (section 12 in the
Native Title Act 1993) which was struck down by the High
Court in Western Australia v the Commonwealth.(5) In
essence, the problem surrounded the fact that the Commonwealth may
exclude the common law or, alternatively, adopt the common law for
a subject area but the common law is not itself a law of the
Commonwealth.Unconscionable conduct is equitable doctrine
associated with the common law.
The Bill attempted to avoid that constitutional difficulty by
utilising a proposed new section 51AC and the concept of harsh or
oppressive conduct.
The Bill lapsed with the General Election in 1996.The Labor
Government lost the election and the Bill was introduced on 17 June
1996 as a Private Member's Bill, as the Trade Practices Amendment
(Better Business Conduct) 1996, by the Leader of the Opposition,
Hon Kim Beazley MP.The Bill was later deleted from the Notice Paper
under Standing Order 104B (Private Member's business which is not
called within a prescribed time is deleted).The Bill has been
reintroduced, on 26 May 1997, as a Private Member's Bill under the
title Trade Practices Amendment (Better Business Conduct) Bill
1997.
A Trade Practices Amendment (Fair Trading) Bill 1997 has also
been introduced as a private Senator's Bill on 24 June 1997, by
Democrat Senator Andrew Murray, and that Bill has been referred to
the Senate Economics Legislation Committee, which is due to report
on the Bill on 6 August 1998.
In evidence to the House of Representatives Standing Committee
on Industry, Science and Technology, in the context of the
Committee's reference on fair trading (May 1997), the Australian
Competition and Consumer Commission commented on a suggestion to
add the words 'harsh or oppressive' to 'unconscionable' and offered
the view that the result was, in effect, tautological.(6) In fact,
the terms 'harsh, unfair and unconscionable' had already been
described judicially in 1967 in Davies v Transport Development
Pty Ltd(7)as a 'tautological trinity'.These terms occur in
State law in the Contracts Review Act 1980 (NSW) which, at
section 4, defines 'unjust' to include 'unconscionable, harsh or
oppressive', and in the Industrial Relations Act 1996
(NSW) which at section 105 defines an 'unfair contract' as one
'that is unfair, harsh or unconscionable'.
The Commonwealth's Industrial Relations Reform Act 1993
identified, without definition, contracts which could be reviewed
by the Court as 'unfair or harsh' (see section 71 which amended
section 127A of the Industrial Relations Act 1988, now
renamed the Workplace Relations Act 1996).
The House of Representatives Committee on Fair Trading
cautioned about the use of the terms and said:
For all these reasons, the Committee believes that it would be
better to use a new word without the legal entailments of
'unconscionability' while avoiding the words 'harsh or oppressive'
in the initial clause establishing the broad statutory
standard.(8)
The Committee considered that 'unjust' and 'unfair' are
equivalents and in its redraft of section 51AA offered the
statutory standard of:
A corporation shall not, in trade or commerce, engage in conduct
that is, in all the circumstances, unfair.
(9)(emphasis added)
On 30 September 1997, the Minister for Workplace Relations and
Small Business introduced the Trade Practices Amendment (Fair
Trading) Bill 1997 which proposes the insertion of a new section
51AC in Part IVA of the Commonwealth's Trade Practices Act
1974.The Bill utilises the concept of unconscionable conduct
and includes a set of criteria to assist the court in determining
when unconscionable conduct is present in a commercial
transaction.A listed public company is excluded from availing
itself of the remedy in proposed section 51AC (essentially, the
provision is confined to dealings involving small businesses).The
provision is also limited to transactions which do not exceed $1
million. Regulations may also declare a mandatory 'industry code'
(i.e. a code of practice).A breach of an industry code is a matter
which may give rise to a finding of unconscionable conduct.
In adhering to the concept of unconscionable conduct, the
Minister said in his Second Reading speech:
The bill uses the expression 'unconscionable conduct' in order
to build on the existing body of case law which has worked well in
relation to consumer protection provisions of the act and which
will provide greater certainty to small business in assessing their
legal rights and remedies.(10)
The Bill, as presented, is at variance with the recommendation
of the House of Representatives Committee on Fair Trading
which cautioned against using the term 'unconscionable conduct'.As
noted above, the Committee favoured the use of the term 'unfair'
conduct.In the Explanatory Memorandum to the Bill, it is
explained that the Government chose the option of unconscionable
conduct because the Committee's recommendation of a new legal term
of 'unfair' carries with it the uncertainty of a previously
undefined legal term and, which when applied by the courts, may
fail to achieve the outcomes desired by small business.The
Government also included in the Bill the proposal of industry codes
of practice which may assist in resolving potential for disputes
and thus avoiding reliance on expensive litigation.(11)
The proposed new sections are contained in Schedules to the
Bill.
Schedule 1
Item 1 inserts a proposed new Part IVB
Industry Codes in the Trade Practices Act 1974.A
proposed new section 51AD prohibits a corporation from breaching an
applicable industry code.The industry code is either prescribed by
Regulations as a mandatory code of conduct for a particular
industry, or it is a voluntary code but which contains certain
provisions which are prescribed by Regulations as binding in that
particular industry.
A proposed new section 51AE expands the Regulation-making power
under the Trade Practices Act 1974 to cover the
declaration of the industry codes.
The remaining Items 2 to 13 in
the Schedule make consequential amendments to ensure that the
proposed new Part IVB is identified in later sections of the
Trade Practices Act 1974, particularly the sections which
provide remedies such as damages (section 82), evidence (section
83) and other orders of the court (section 87).
Schedule 2
Item 2 in the Schedule is the key provision in
the Bill and it adds a proposed section 51AC Unconscionable
conduct in business transactions, to the Trade Practices
Act 1974.The proposed new section 51AC contains criteria at
subsection 2 to assist the court in determining whether a
corporation has engaged in unconscionable conduct.These criteria
include having regard to the bargaining positions of the parties,
whether undue influence or pressure was applied, compliance with
any applicable industry code and the extent to which both parties
acted in good faith.
The proposed new section is expressly limited to transactions
which do not exceed $1 million (subsection 51AC(7)).Excluded from
using the remedy offered by proposed new section 51AC are publicly
listed companies (subsection 51AC(11)).
While noting the Government's preference for reliance on the
concept of unconscionable conduct in lieu of the untested 'unfair'
conduct favoured by the House of Representatives Committee on
Fair Trading, the history of the use of the equitable
doctrine of unconscionable conduct has not, as yet, favoured small
business.
- Small Business and the Trade Practices Act, Australian
Competition and Consumer Commission, Canberra, November 1995.
- Ibid: 6 7.
- See Kitto J. in the High Court decision Blomley v
Ryan, (1956) 99 CLR 362 at p.415 and Merkel J. in Gregg v
Tasmanian Trustees Ltd (1997) 143 ALR 328. See also The
Commercial Bank of Australia v Amadio (1983) 151 CLR 447.
Refer to the summary in Unconscionable conduct in commercial
dealings: A guide to section 51AA of the Trade Practices Act,
Trade Practices Commission, Canberra, October 1993: 3.
- Section 51AA of the Trade Practices Act 1974: Supplementary
Report by the Section 51AA Working Party To The Minister For Small
Business, Senator Schacht on the Need to Amend Section 51AA,
May 1995: 14 15.
- [1995] 69 ALRJ 309.
- House of Representatives, Finding a balance: towards fair
trading in Australia, Report by the House of Representatives
Standing Committee on Industry, Science and Technology, May 1997:
179.
- [1967] AR (NSW) 371.
- House of Representatives, Finding a balance: towards fair
trading in Australia, Report by the House of Representatives
Standing Committee on Industry, Science and Technology, May 1997:
179.
- Ibid: 181.
- Australia, House of Representatives, Hansard, 30
September 1997: 8546 (Proof).
- Explanatory Memorandum, Trade Practices Amendment
(Fair Trading) Bill 1997, September 1997: 14 15.
Brendan Bailey
9 October 1997
Bills Digest Service
Information and Research Services
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ISSN 1328-8091
© Commonwealth of Australia 1997
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Last updated: 13 October 1997
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