Bills Digest No. 55   1997-98 Trade Practices Amendment (Fair Trading) Bill 1997


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WARNING:
This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

CONTENTS

Passage History

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).

Purpose

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.

Background

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)

Main Provisions

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)).

Concluding Comments

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.

Endnotes

  1. Small Business and the Trade Practices Act, Australian Competition and Consumer Commission, Canberra, November 1995.
  2. Ibid: 6 7.
  3. 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.
  4. 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.
  5. [1995] 69 ALRJ 309.
  6. 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.
  7. [1967] AR (NSW) 371.
  8. 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.
  9. Ibid: 181.
  10. Australia, House of Representatives, Hansard, 30 September 1997: 8546 (Proof).
  11. Explanatory Memorandum, Trade Practices Amendment (Fair Trading) Bill 1997, September 1997: 14 15.

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9 October 1997
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ISSN 1328-8091
© Commonwealth of Australia 1997

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Last updated: 13 October 1997

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